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Equibles

10-Q

Alexandria Real Estate Equities, Inc. (ARE)

10-Q 2016-05-04 For: 2016-03-31
View Original
Added on April 04, 2026

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 March 31, 2016

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<br><br>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 April 15, 2016, 73,874,188 shares of common stock, par value $.01 per share, were outstanding.

TABLE OF CONTENTS

Page
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of March 31, 2016, and December 31, 2015 1
Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015 2
Consolidated Statements of Comprehensive Income for the Three Months Ended<br><br>March 31, 2016 and 2015 3
Consolidated Statement of Changes in Stockholders’ Equity and Noncontrolling Interests for the Three Months Ended March 31, 2016 4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 5
Notes to Consolidated Financial Statements 7
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 42
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 103
Item 4. CONTROLS AND PROCEDURES 104
PART II – OTHER INFORMATION
Item 1A. RISK FACTORS 105
Item 5. OTHER INFORMATION 105
Item 6. EXHIBITS 105
SIGNATURES 107

i

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
ASU Accounting Standards Update
ATM At the Market
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
JV Joint Venture
LEED^®^ Leadership in Energy and Environmental Design
LIBOR London Interbank Offered Rate
NAREIT National Association of Real Estate Investment Trusts
NOI Net Operating Income
NYSE New York Stock Exchange
R&D Research & Development
REIT Real Estate Investment Trust
RSF Rentable Square Feet/Foot
SEC Securities and Exchange Commission
SF Square Feet/Foot
SoMa South of Market (submarket of the San Francisco market)
U.S. United States
VIE Variable Interest Entity
YTD Year To Date

ii

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Alexandria Real Estate Equities, Inc. Consolidated Balance Sheets

(In thousands)

(Unaudited)

March 31, 2016 December 31, 2015
Assets
Investments in real estate $ 7,741,466 $ 7,629,922
Investments in unconsolidated real estate joint ventures 127,165 127,212
Cash and cash equivalents 146,197 125,098
Restricted cash 14,885 28,872
Tenant receivables 9,979 10,485
Deferred rent 293,144 280,570
Deferred leasing costs 192,418 192,081
Investments 316,163 353,465
Other assets 130,115 133,312
Total assets $ 8,971,532 $ 8,881,017
Liabilities, Noncontrolling Interests, and Equity
Secured notes payable $ 816,578 $ 809,818
Unsecured senior notes payable 2,031,284 2,030,631
Unsecured senior line of credit 299,000 151,000
Unsecured senior bank term loans 944,637 944,243
Accounts payable, accrued expenses, and tenant security deposits 628,467 589,356
Dividends payable 64,275 62,005
Total liabilities 4,784,241 4,587,053
Commitments and contingencies
Redeemable noncontrolling interests 14,218 14,218
Alexandria Real Estate Equities, Inc.’s stockholders’ equity:
Series D cumulative convertible preferred stock 213,864 237,163
Series E cumulative redeemable preferred stock 130,000 130,000
Common stock 729 725
Additional paid-in capital 3,529,660 3,558,008
Accumulated other comprehensive (loss) income (8,533 ) 49,191
Alexandria Real Estate Equities, Inc.’s stockholders’ equity 3,865,720 3,975,087
Noncontrolling interests 307,353 304,659
Total equity 4,173,073 4,279,746
Total liabilities, noncontrolling interests, and equity $ 8,971,532 $ 8,881,017

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

Alexandria Real Estate Equities, Inc.

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended March 31,
2016 2015
Revenues:
Rental $ 158,276 $ 143,608
Tenant recoveries 52,597 48,394
Other income 5,216 4,751
Total revenues 216,089 196,753
Expenses:
Rental operations 65,837 61,223
General and administrative 15,188 14,387
Interest 24,855 23,236
Depreciation and amortization 70,866 58,920
Impairment of real estate 28,980 14,510
Total expenses 205,726 172,276
Equity in (losses) earnings of unconsolidated real estate joint ventures (397 ) 574
Income from continuing operations 9,966 25,051
Loss from discontinued operations — (43 )
Net income 9,966 25,008
Net income attributable to noncontrolling interests (4,030 ) (492 )
Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders 5,936 24,516
Dividends on preferred stock (5,907 ) (6,247 )
Preferred stock redemption charge (3,046 ) —
Net income attributable to unvested restricted stock awards (801 ) (483 )
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders $ (3,818 ) $ 17,786
EPS attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted:
Continuing operations $ (0.05 ) $ 0.25
Discontinued operations — —
EPS – basic and diluted $ (0.05 ) $ 0.25
Dividends declared per share of common stock $ 0.80 $ 0.74

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

Alexandria Real Estate Equities, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended March 31,
2016 2015
Net income $ 9,966 $ 25,008
Other comprehensive income (loss):
Unrealized (losses) gains on available-for-sale equity securities:
Unrealized holding (losses) gains arising during the period (47,423 ) 28,435
Reclassification adjustment for (gains) losses included in net income (7,026 ) 1,103
Unrealized (losses) gains on available-for-sale equity securities, net (54,449 ) 29,538
Unrealized losses on interest rate swap agreements:
Unrealized interest rate swap losses arising during the period (6,961 ) (3,013 )
Reclassification adjustment for amortization to interest expense included in net income 158 505
Unrealized losses on interest rate swap agreements, net (6,803 ) (2,508 )
Unrealized gains on foreign currency translation:
Unrealized foreign currency translation gains (losses) arising during the period 3,528 (6,271 )
Reclassification adjustment for losses included in net income — 9,236
Unrealized gains on foreign currency translation, net 3,528 2,965
Total other comprehensive (loss) income (57,724 ) 29,995
Comprehensive (loss) income (47,758 ) 55,003
Less: comprehensive income attributable to noncontrolling interests (4,030 ) (646 )
Comprehensive (loss) income attributable to Alexandria Real Estate Equities, Inc.’s stockholders $ (51,788 ) $ 54,357

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

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<br><br>Cumulative<br><br>Convertible<br><br>Preferred<br><br>Stock Series E<br><br>Cumulative<br><br>Redeemable<br><br>Preferred<br><br>Stock Number of<br><br>Common<br><br>Shares Common<br><br>Stock Additional<br><br>Paid-In Capital Retained<br><br>Earnings Accumulated Other Comprehensive Income (Loss) Noncontrolling<br><br>Interests Total<br><br>Equity Redeemable<br><br>Noncontrolling<br><br>Interests
Balance as of December 31, 2015 $ 237,163 $ 130,000 72,548,693 $ 725 $ 3,558,008 $ — $ 49,191 $ 304,659 $ 4,279,746 $ 14,218
Net income — — — — — 5,936 — 3,732 9,668 298
Total other comprehensive loss — — — — — — (57,724 ) — (57,724 ) —
Distributions to noncontrolling interests — — — — — — — (1,038 ) (1,038 ) (298 )
Issuances of common stock — — 293,235 3 25,275 — — — 25,278 —
Issuances pursuant to stock plan — — 31,604 1 7,767 — — — 7,768 —
Redemption of Series D preferred stock (23,299 ) — — — 727 (3,046 ) — — (25,618 ) —
Dividends declared on common stock — — — — — (59,100 ) — — (59,100 ) —
Dividends declared on preferred stock — — — — — (5,907 ) — — (5,907 ) —
Distributions in excess of earnings — — — — (62,117 ) 62,117 — — — —
Balance as of March 31, 2016 $ 213,864 $ 130,000 72,873,532 $ 729 $ 3,529,660 $ — $ (8,533 ) $ 307,353 $ 4,173,073 $ 14,218

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

Alexandria Real Estate Equities, Inc.<br><br>Consolidated Statements of Cash Flows<br><br>(In thousands)<br><br>(Unaudited)
Three Months Ended March 31,
2016 2015
Operating Activities
Net income $ 9,966 $ 25,008
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 70,866 58,920
Impairment of real estate 28,980 14,510
Equity in losses (earnings) of unconsolidated real estate joint ventures 397 (574 )
Distributions of earnings from unconsolidated real estate joint ventures 98 491
Amortization of loan fees 2,760 2,834
Amortization of debt premiums (86 ) (82 )
Amortization of acquired below-market leases (974 ) (933 )
Deferred rent (12,138 ) (9,901 )
Stock compensation expense 5,439 3,690
Investment gains (5,891 ) (5,937 )
Investment losses 1,782 2,225
Changes in operating assets and liabilities:
Restricted cash 671 (51 )
Tenant receivables 521 (102 )
Deferred leasing costs (7,083 ) (7,131 )
Other assets (2,525 ) (3,247 )
Accounts payable, accrued expenses, and tenant security deposits 8,999 27,121
Net cash provided by operating activities 101,782 106,841
Investing Activities
Proceeds from sales of real estate — 67,616
Additions to real estate (159,501 ) (104,632 )
Purchase of real estate — (93,938 )
Deposits for investing activities — (28,000 )
Investments in unconsolidated real estate joint ventures (449 ) (2,539 )
Additions to investments (22,085 ) (15,118 )
Sales of investments 10,913 2,345
Repayment of notes receivable — 4,214
Net cash used in investing activities $ (171,122 ) $ (170,052 )
Alexandria Real Estate Equities, Inc.<br><br>Consolidated Statements of Cash Flows<br><br>(In thousands)<br><br>(Unaudited)
--- --- --- --- --- --- ---
Three Months Ended March 31,
2016 2015
Financing Activities
Borrowings from secured notes payable $ 64,922 $ 29,585
Repayments of borrowings from secured notes payable (58,657 ) (7,934 )
Borrowings from unsecured senior line of credit 555,000 167,000
Repayments of borrowings from unsecured senior line of credit (407,000 ) (50,000 )
Change in restricted cash related to financing activities 8,316 (1,369 )
Payment of loan fees (377 ) (563 )
Redemption of Series D cumulative convertible preferred stock (25,618 ) —
Proceeds from the issuance of common stock 25,278 —
Dividends on common stock (56,490 ) (53,295 )
Dividends on preferred stock (6,247 ) (6,247 )
Financing costs paid for sales of noncontrolling interests (6,420 ) —
Contributions by noncontrolling interests — 340
Distributions to noncontrolling interests (1,927 ) (9,846 )
Net cash provided by financing activities 90,780 67,671
Effect of foreign exchange rate changes on cash and cash equivalents (341 ) 170
Net increase in cash and cash equivalents 21,099 4,630
Cash and cash equivalents as of the beginning of period 125,098 86,011
Cash and cash equivalents as of the end of period $ 146,197 $ 90,641
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest, net of interest capitalized $ 14,068 $ 15,514
Non-Cash Investing Activities
Change in accrued construction $ 29,197 $ 7,249
Assumption of secured notes payable in connection with purchase of real estate $ — $ (82,000 )
Non-Cash Financing Activities
Payable for purchase of noncontrolling interest $ — $ (113,967 )

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

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 an urban office REIT uniquely focused on world-class collaborative science and technology campuses in AAA innovation cluster locations with a total market capitalization of $11.1 billion and an asset base in North America of 24.5 million square feet as of March 31, 2016. The asset base in North America includes 18.9 million RSF of operating properties and development and redevelopment projects (under construction or pre-construction), as well as an additional 5.6 million square feet of future ground-up development projects. Alexandria pioneered this niche in 1994 and has since established a dominant market presence in key 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 tenant base, with approximately 52% of total ABR as of March 31, 2016, generated from investment-grade 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 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 www.are.com.

Our asset base (including consolidated and unconsolidated real estate joint ventures) consisted of the following, as of March 31, 2016:

Square Feet (unaudited)
North America:
Operating properties 15,400,619
Projects under construction or pre-construction:
Projects to be delivered by 4Q16 1,465,977
Projects to be delivered in 2017 and 2018 2,036,828
Development and redevelopment projects 3,502,805
Operating properties, including development and redevelopment projects 18,903,424
Future value-creation projects 5,606,435
Value-creation pipeline 9,109,240
Total - North America 24,509,859
Asia:
Operating properties 1,200,683
Land parcels ^(1)^
Asia 1,200,683
(1) Aggregating 196 acres.
--- ---

As of March 31, 2016:

• Investment-grade tenants represented approximately 52% of our total ABR;
• Approximately 96% of our leases (on an RSF basis) were triple net leases, requiring 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 95% 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 index; 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, ABR, yield on cost, 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.

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, of a normal recurring nature, 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, 2016. 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, 2015.

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. Certain prior-period amounts have been reclassified to conform to current-period presentation.

Consolidation

On an ongoing basis, as circumstances indicate the need for reconsideration, we evaluate each legal entity that is not wholly owned by us, under the consolidation guidance, first under the variable interest model, then under the voting model. Our evaluation considers all of our variable interests, including equity ownership, as well as fees paid to us for our involvement in the management of each partially owned entity. The variable interest model applies to entities that meet both of the following criteria:

• A legal structure has been established to conduct business activities and to hold assets; such entity can be in the form of a partnership, limited liability company or corporation, among others; and
• The entity established has variable interests – i.e. it has variable interests that are contractual, such as equity ownership or other financial interests that change with changes in the fair value of the entity’s net assets.
--- ---

If an entity meets both criteria above, we then evaluate such entity under the variable interest model. If an entity does not meet these criteria, then we evaluate such entity under the voting model or apply other GAAP, such as the cost or equity method of accounting.

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

Variable interest model

A legal entity is determined to be a VIE if it has any of the following three characteristics:

1) The entity does not have sufficient equity to finance its activities without additional subordinated financial support;
2) The entity is established with non-substantive voting rights (i.e., where the entity deprives the majority economic interest holder(s) of voting rights); or
--- ---
3) The equity holders, as a group, lack the characteristics of a controlling financial interest. Equity holders meet this criterion if they lack any of the following:
--- ---
• The power, through voting rights or similar rights, to direct the activities of the entity that most significantly impact the entity’s economic performance, as evidenced by:
--- ---
• Substantive participating rights in day-to-day management of the entity’s activities; or
--- ---
• Substantive kick-out rights over the party responsible for significant decisions
--- ---
• The obligation to absorb the entity’s expected losses; and
--- ---
• The right to receive the entity’s expected residual returns.
--- ---

Once we consider the sufficiency of equity and voting rights of each legal entity, we then evaluate the characteristics of the equity holders’ interests, as a group, to see if they qualify as controlling financial interests. Our real estate joint ventures consist of limited partnerships or limited liability companies. For entities structured as limited partnerships or limited liability companies, our evaluation of whether the equity holders (equity partners other than us in each of our real estate joint ventures) lack the characteristics of a controlling financial interest includes the determination of whether the limited partners or non-managing members (the noncontrolling equity holders) lack both substantive participating rights and substantive kick-out rights, defined as follows:

• Participating rights – provide the noncontrolling equity holders the ability to direct significant financial and operating decisions made in the ordinary course of business that most significantly impact the entity’s economic performance.
• Kick-out rights – allow the noncontrolling equity holders to remove the general partner or managing member without cause.
--- ---

If we conclude that any of the three characteristics of a VIE are met, including if equity holders lack the characteristics of a controlling financial interest because they lack both substantive participating rights and substantive kick-out rights, we conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.

If an entity is determined to be a VIE, we evaluate whether we are the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and benefits. We consolidate a VIE if we have both power and benefits – that is, (i) we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power), and (ii) we have the obligation to absorb losses of the VIE that could potentially be significant to the VIE, or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). We consolidate VIEs whenever we determine that we are the primary beneficiary. Refer to Note 3 – “Investments in Real Estate” for information on specific real estate joint ventures that qualify as VIEs. If we have a variable interest in a VIE but we are not the primary beneficiary, we account for our investment using the equity method of accounting.

Voting model

If a legal entity fails to meet any of the three characteristics of a VIE (insufficiency of equity, non-substantive voting rights, or lack of controlling financial interest), we then evaluate such entity under the voting model. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting shares, and we determine that other equity holders do not have substantive participating rights. Refer to Note 4 – “Investments in Unconsolidated Real Estate Joint Ventures” to our unaudited consolidated financial statements under Item 1 of this report for further information on our unconsolidated real estate joint ventures that qualify for evaluation under the voting model.

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.

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, 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 under the 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 up to 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 above- and below-market ground leases are amortized over the terms of the related ground leases and recognized as either an increase (for below-market ground leases) or a decrease (for above-market ground leases) to rental operating expense. 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 capitalize project costs, including predevelopment costs, interest, property taxes, insurance, and other costs directly related and essential to the 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.

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, 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.

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

Impairment of long-lived assets

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.

Long-lived assets to be held for use, including our rental properties, CIP, land held for development, and intangibles, are individually evaluated for impairment when conditions exist that may indicate that the carrying amount of a long-lived asset may not be recoverable. The carrying amount of a long-lived asset to be held for use 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 for use, 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 for use. 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 for use impairment model. Under the held for sale impairment model, an impairment loss is recognized if the carrying 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 for use to require the recognition of an impairment charge upon classification as held for sale. Refer to Note 14 – “Assets Classified as Held for Sale” to our unaudited consolidated financial statements under Item 1 of this report for additional information.

Investments

We hold equity investments in certain publicly traded companies and investments in certain privately held entities and limited partnerships primarily involved in the science and technology industries. All of our equity 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 require accounting 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 carrying 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 March 31, 2016, and December 31, 2015, our ownership percentage in the voting stock of each individual entity was less than 10%.

We monitor each of our 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.

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 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 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 tenants to make payments required under the terms of the lease and for tenant recoveries due. If a 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 March 31, 2016, and December 31, 2015, we had no allowance for uncollectible tenant receivables and deferred rent.

Monitoring tenant credit quality

During the term of each lease, we monitor the credit quality of our tenants by (i) monitoring the credit rating of tenants that are rated by a nationally recognized credit rating agency, (ii) reviewing financial statements of the 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 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 tenants and any material changes in their credit quality.

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 2010-2014 calendar years.

Other income

The following is a summary of other income in the accompanying consolidated statements of income for the three months ended March 31, 2016 and 2015 (in thousands):

Three Months Ended March 31,
2016 2015
Management fee income $ 253 $ 554
Interest and other income 854 485
Investment income 4,109 3,712
Total other income $ 5,216 $ 4,751
2. Basis of presentation and summary of significant accounting policies (continued)
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Recent accounting pronouncements

On January 1, 2016, we adopted an ASU that requires debt issuance costs, excluding debt issuance costs associated with a line of credit, to be classified in our consolidated balance sheet as a direct deduction from the face amount of the related debt. We were required to apply this ASU retrospectively to all prior periods. As a result of adopting the ASU, unamortized deferred financing costs aggregating $30.1 million as of January 1, 2016, were classified with the corresponding debt instrument appearing on our consolidated balance sheet, and deferred financing costs related to our unsecured senior line of credit, aggregating $11.9 million as of January 1, 2016, were classified in other assets. The ASU was applied retrospectively to all prior periods presented in the financial statements. The adoption of this ASU has no impact on our consolidated statement of income.

In January 2016, the FASB issued an ASU that amended the accounting for equity investments and the presentation and disclosure requirements for financial instruments. The ASU requires equity investments that have a readily determinable fair value (except those accounted for under the equity method of accounting or that result in consolidation) to be measured at fair value with the changes in fair value recognized in earnings. Available-for-sale equity securities that under current GAAP require the recognition of unrealized gains and losses in other comprehensive income will no longer be permitted. An election will be available to measure equity investments without a readily determinable fair value at cost less impairments, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Changes in the carrying value from this measurement will also be reported in current earnings. A cumulative-effect adjustment will be recorded to the beginning balance of retained earnings in the reporting period in which the guidance is adopted. The update is effective for fiscal years beginning after December 15, 2017. As of March 31, 2016, we had $63.2 million of net unrealized gains related to our available-for-sale equity investments in publicly traded companies included in accumulated other comprehensive loss on our consolidated statements of comprehensive income.

In February 2016, the FASB issued an ASU that sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. The ASU is expected to impact our consolidated financial statements as we have certain operating ground lease arrangements for which we are the lessee. As of March 31, 2016, the remaining contractual payments under our ground lease agreements aggregated $611.4 million. The ASU supersedes previous leasing standards. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact that the adoption of the ASU will have on our consolidated financial statements.

In March 2016, the FASB issued an ASU, which further clarifies an ASU on revenue from contracts with customers issued in 2014 that outlined revenue recognition for revenue arising from contracts with customers. The core principle is that entities will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in such exchange. Leases are specifically excluded from the ASU on revenue from contracts with customers and will be governed by the applicable lease codification; however, this update may have implications in certain variable payment terms included in lease agreements and in sale and leaseback transactions. The ASUs are effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. We are currently assessing the potential impact the adoption of these ASUs will have on our consolidated financial statements.

3. Investments in real estate

Our consolidated investments in real estate consisted of the following as of March 31, 2016, and December 31, 2015 (in thousands):

March 31, 2016 December 31, 2015
North America:
Land (related to rental properties) $ 661,881 $ 677,649
Buildings and building improvements 6,608,884 6,644,634
Other improvements 288,961 260,605
Rental properties – North America 7,559,726 7,582,888
Development and redevelopment projects (under construction or pre-construction) 1,106,138 917,706
Future value-creation projects – North America 234,142 206,939
Value-creation pipeline – North America 1,340,280 1,124,645
Gross investments in real estate – North America 8,900,006 8,707,533
Gross investments in real estate – Asia 218,052 237,728
Gross investments in real estate 9,118,058 8,945,261
Less: accumulated depreciation (1,376,592 ) (1,315,339 )
Investments in real estate $ 7,741,466 $ 7,629,922

Refer to the section titled “Assets Located in Asia” in Note 14 – “Assets Classified as Held for Sale” to our unaudited consolidated financial statements under Item 1 of this report.

Investments in consolidated real estate joint ventures

We own partial interests in the following Class A properties: (i) 30% interest in 225 Binney Street in our Cambridge submarket, (ii) 50.1% interest in 1500 Owens Street in our Mission Bay/SoMa submarket, and (iii) 60% interest in 409/499 Illinois Street in our Mission Bay/SoMa submarket. In each case, our joint venture partner, a high-quality institutional investor, is a non-managing member that owns the remaining interest of each legal entity that wholly owns each respective property. Under each of these real estate joint venture arrangements, we are the managing member and earn a management fee for continuing to manage the day-to-day operations of each property.

Based on the analysis detailed in Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies,” the institutional investor, as the non-managing member of these joint ventures, lacks the characteristics of a controlling financial interest in each of the joint ventures, including 225 Binney Street, because it does not have substantive kick-out rights or substantive participating rights. Therefore, the joint ventures meet the criteria to be considered VIEs and, therefore, are evaluated for consolidation under the VIE model.

After determining these joint ventures are VIEs, we determined that we are the primary beneficiary of each real estate joint venture, as, in our capacity as managing member, we have the power to make decisions that most significantly impact operations and economic performance of the joint ventures. In addition, through our investment in each joint venture, we have the right to receive benefits and participate in losses that can be significant to the VIEs. Since we are the primary beneficiary of each joint venture, we consolidate each entity.

3. Investments in real estate (continued)

The following table summarizes the balance sheet information of our consolidated VIEs as of March 31, 2016 (in thousands):

March 31, 2016
Consolidated Real Estate Joint Ventures at 100%
225 Binney Street 1500 Owens Street 409/499 Illinois Street
Investments in real estate $ 162,484 $ 82,121 $ 360,224
Cash and cash equivalents 4,956 3,077 9,234
Other assets 6,968 6,376 23,820
Total assets $ 174,408 $ 91,574 $ 393,278
Secured notes payable $ — $ — $ —
Other liabilities 3,872 11,288 29,311
Total liabilities 3,872 11,288 29,311
Alexandria Real Estate Equities, Inc.’s share of equity 51,161 40,223 218,380
Noncontrolling interests share of equity 119,375 40,063 145,587
Total liabilities and equity $ 174,408 $ 91,574 $ 393,278

There are no creditors or other partners of our consolidated VIEs who have recourse to our general credit. Our maximum exposure to all our VIEs is limited to our variable interests in each VIE.

Development and redevelopment projects under construction

As of March 31, 2016, we had 11 ground-up development projects, including two unconsolidated real estate joint venture development projects, and four redevelopment projects under construction in North America. The projects at completion will aggregate 4.2 million RSF, of which 721,349 RSF has been completed and was in service as of March 31, 2016.

Future value-creation projects

Future value-creation projects represent land held for future development or land undergoing predevelopment activities. If land is undergoing predevelopment activities prior to commencement of construction of aboveground building improvements, we capitalize project costs, including interest, property taxes, insurance, and other costs directly related and essential to the development or construction of a project, during periods when activities necessary to prepare an asset for its intended use are in progress. For all other land (that we plan to develop in the future, but for which, as of each period presented, no construction or predevelopment activities were ongoing), interest, property taxes, insurance, and other costs are expensed as incurred. As of March 31, 2016, we had $234.1 million of future value-creation projects supporting an aggregate of 5.6 million square feet of ground-up development in North America.

4. Investments in unconsolidated real estate joint ventures

360 Longwood Avenue

We are currently developing a building aggregating 413,799 RSF in our Longwood Medical Area submarket of the Greater Boston market. The cost at completion for this real estate project is expected to be approximately $350 million. As of March 31, 2016, we had 262,367 RSF, or 63% of the project, leased and in service. The real estate joint venture has a non-recourse, secured construction loan with commitments aggregating $213.2 million, of which $180.4 million was outstanding as of March 31, 2016. The amount of $180.0 million classified as secured note payable as of March 31, 2016, consist of $180.4 million of face value of the secured note payable net of $470 thousand of unamortized deferred financing costs. The remaining cost to complete the development is expected to be funded primarily from the remaining commitments of $32.8 million under the secured construction loan. The secured construction loan bears interest at a fixed rate of 5.25% for approximately $175.2 million of the total aggregate commitments, and bears interest at a floating interest rate of LIBOR+3.75%, with a floor of 5.25%, for approximately $38.0 million of the total aggregate commitments. 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% effective interest in this real estate joint venture. Our equity investment in this real estate joint venture was $50.1 million as of March 31, 2016.

1455/1515 Third Street

We have a real estate joint venture with Uber Technologies, Inc. (“Uber”), for the development of two buildings aggregating 422,980 RSF at 1455/1515 Third Street in our Mission Bay/SoMa submarket of the San Francisco market. We have a 51% interest, and Uber has a 49% interest, in this real estate joint venture. The project is 100% leased to Uber for a 15-year term. Our equity investment in the real estate joint venture aggregated $77.0 million as of March 31, 2016.

As described in Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies,” we evaluate each of our unconsolidated real estate joint ventures, which are limited liability companies, using the consolidation guidance under the variable interest model first, and then under the voting model if the entity is not a VIE. We evaluated our 360 Longwood Avenue joint venture (27.5% interest held by the Company) and our 1455/1515 Third Street joint venture (51% interest held by the Company) under the variable interest model, based upon the following characteristics of a VIE:

1) The entity does not have sufficient equity to finance its activities without additional subordinated financial support.
• 360 Longwood Avenue – This entity has significant equity and non-recourse financing in place to fund the remainder of the development.
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• 1455/1515 Third Street – This entity has significant equity, and non-recourse financing is available to fund the remainder of the development.
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2) The entity is established with non-substantive voting rights.
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• 360 Longwood Avenue – Our 27.5% economic interest in 360 Longwood Avenue consists of an interest in a real estate joint venture with a development partner. The joint venture with our development partner holds an interest in the property with an institutional investor. Our development partner is responsible for day-to-day management of construction and development activities, and we are responsible for day-to-day administrative operations of components of the property once they are placed into service following development completion. At the property level, all major decisions (including the development plan, annual budget, leasing plan, and financing plan) require approval of all three investors. Although voting rights within the structure are disproportionate to the members’ economic interests, the activities of the ventures are conducted on behalf of all members, and therefore, the voting rights, while disproportionate, are substantive.
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• 1455/1515 Third Street – We hold a 51% economic interest in this real estate joint venture, and our joint venture partner holds a 49% economic interest. However, both members are required to approve major decisions, resulting in equal voting rights. Although voting rights within the structure are disproportionate to the members’ economic interests, the activities of the ventures are conducted on behalf of both members, and therefore, the voting rights, while disproportionate, are substantive.
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4. Investments in unconsolidated real estate joint ventures (continued)
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3) The equity holders, as a group, lack the characteristics of a controlling financial interest, as evidenced by lack of substantive kick-out rights or substantive participating rights.
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• 360 Longwood Avenue – The other members have significant participating rights, including day-to-day management of development activities and participation in decisions related to the operations of the property.
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• 1455/1515 Third Street – Our joint venture partner has significant participating rights, including joint decision making for the design of the project, overall development costs, future potential financing and operating activities of the joint venture, and disposal of the assets held by the joint venture.
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Since the joint ventures do not meet the VIE criteria, we determined that these entities do not qualify for evaluation under the VIE model. Therefore, we evaluate each of these joint ventures under the voting model. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting shares, and we determine that noncontrolling equity holders do not have substantive participating rights.

For our 360 Longwood Avenue joint venture, our interest is limited to 27.5%, and since we do not have other contractual rights, we account for this joint venture under the equity method of accounting.

For our 1455/1515 Third Street joint venture, both members have substantive participating rights, and therefore, we also account for this joint venture under the equity method of accounting.

5. Investments

We hold equity investments in certain publicly traded companies and investments in certain privately held entities and limited partnerships primarily involved in the science and technology industries. All of our equity investments in actively traded public companies are considered available-for-sale and are reflected in the accompanying consolidated balance sheets at fair value. Our investments in privately held entities are primarily accounted for under the cost method.

Investments in available-for-sale equity securities with gross unrealized losses as of March 31, 2016, 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 equity securities as of March 31, 2016, or December 31, 2015.

The following table summarizes our investments as of March 31, 2016, and December 31, 2015 (in thousands):

March 31, 2016 December 31, 2015
Available-for-sale equity securities, cost basis $ 22,237 $ 20,022
Unrealized gains 65,069 118,392
Unrealized losses (1,919 ) (793 )
Available-for-sale equity securities, at fair value 85,387 137,621
Investments accounted for under cost method 230,776 215,844
Total investments $ 316,163 $ 353,465

The following table outlines our investment income, which is classified in other income in the accompanying consolidated statements of income (in thousands):

Three Months Ended March 31,
2016 2015
Investment gains $ 5,891 $ 5,937
Investment losses (1,782 ) (2,225 )
Investment income $ 4,109 $ 3,712
6. Other assets
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The following table summarizes the components of other assets as of March 31, 2016, and December 31, 2015 (in thousands):

March 31, 2016 December 31, 2015
Acquired below-market ground leases $ 13,085 $ 13,142
Acquired in-place leases 26,860 27,997
Deferred compensation plan 8,547 8,489
Deferred financing costs – unsecured senior line of credit 10,916 11,909
Deposits 8,570 3,713
Furniture, fixtures, and equipment, net 14,185 13,682
Interest rate swap assets 25 596
Notes receivable 16,672 16,630
Prepaid expenses 10,305 17,651
Other assets 20,950 19,503
Total $ 130,115 $ 133,312
7. Fair value measurements
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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 three months ended March 31, 2016 and 2015.

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 March 31, 2016, and December 31, 2015 (in thousands):

March 31, 2016
Description Total Quoted Prices in<br><br>Active Markets<br><br>for Identical<br><br>Assets Significant<br><br>Other<br><br>Observable<br><br>Inputs Significant<br><br>Unobservable<br><br>Inputs
Assets:
Available-for-sale equity securities $ 85,387 $ 85,387 $ — $ —
Interest rate swap agreements $ 25 $ — $ 25 $ —
Liabilities:
Interest rate swap agreements $ 10,546 $ — $ 10,546 $ —
7. Fair value measurements (continued)
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December 31, 2015
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Description Total Quoted Prices in<br><br>Active Markets<br><br>for Identical<br><br>Assets Significant<br><br>Other<br><br>Observable<br><br>Inputs Significant<br><br>Unobservable<br><br>Inputs
Assets:
Available-for-sale equity securities $ 137,621 $ 137,621 $ — $ —
Interest rate swap agreements $ 596 $ — $ 596 $ —
Liabilities:
Interest rate swap agreements $ 4,314 $ — $ 4,314 $ —

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 equity securities and our interest rate swap agreements have been recognized at fair value. Refer to Note 5 – “Investments” and Note 9 – “Interest Rate Swap Agreements” in our unaudited consolidated financial statements under Item 1 of this report for further details. 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 March 31, 2016, and December 31, 2015, the book and estimated fair values of our available-for-sale 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):

March 31, 2016 December 31, 2015
Book Value Fair Value Book Value Fair Value
Assets:
Available-for-sale equity securities $ 85,387 $ 85,387 $ 137,621 $ 137,621
Interest rate swap agreements $ 25 $ 25 $ 596 $ 596
Liabilities:
Interest rate swap agreements $ 10,546 $ 10,546 $ 4,314 $ 4,314
Secured notes payable $ 816,578 $ 846,915 $ 809,818 $ 832,342
Unsecured senior notes payable $ 2,031,284 $ 2,113,185 $ 2,030,631 $ 2,059,855
Unsecured senior line of credit $ 299,000 $ 300,428 $ 151,000 $ 151,450
Unsecured senior bank term loans $ 944,637 $ 957,490 $ 944,243 $ 951,098

Nonrecurring fair value measurements

Refer to the section titled “Assets Located in Asia” in Note 14 – “Assets Classified as Held for Sale” to our unaudited consolidated financial statements under Item 1 of this report.

8. Secured and unsecured senior debt

The following table summarizes our secured and unsecured senior debt as of March 31, 2016 (dollars in thousands):

Fixed-Rate/Hedged<br><br>Variable Rate Unhedged<br><br>Variable Rate Weighted-Average
Total Interest Remaining Term<br><br>(in years)
Consolidated ^(1)^ Percentage Rate ^(2)^
Secured notes payable $ 359,935 $ 456,643 $ 816,578 20.0 % 3.90 % 2.6
Unsecured senior notes payable 2,031,284 — 2,031,284 49.6 4.14 7.5
$1.5 billion unsecured senior line of credit 150,000 149,000 299,000 7.3 1.77 2.8
2019 Unsecured Senior Bank Term Loan 597,035 — 597,035 14.6 1.88 2.8
2021 Unsecured Senior Bank Term Loan 347,602 — 347,602 8.5 1.74 4.8
Total/weighted average $ 3,485,856 $ 605,643 $ 4,091,499 100.0 % 3.39 % 5.2
Percentage of total debt 85% 15% 100%
(1) In accordance with the ASU adopted in January 2016 as discussed in Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies.”
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(2) Represents the weighted-average interest rate as of the end of the period plus the impact of debt premiums/discounts, interest rate swap agreements, and deferred financing costs.
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8. Secured and unsecured senior debt (continued)
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The following table summarizes our outstanding indebtedness and respective principal payments as of March 31, 2016 (dollars in thousands):

Stated<br><br>Rate Weighted-Average<br><br>Interest Rate^(1)^ Maturity Principal Payments Remaining for the Periods Ending December 31, Unamortized Premium/(Discount), (Deferred Financing Costs)
Debt Date ^(2)^ 2016 2017 2018 2019 2020 Thereafter Principal Total
Secured notes payable
San Francisco 6.35 % 6.64 % (3) $ 126,020 $ — $ — $ — $ — $ — $ 126,020 $ (34 ) $ 125,986
San Francisco L+1.50 2.83 (3) 47,821 — — — — — 47,821 (104 ) 47,717
Maryland 2.44 2.91 1/20/17 — 76,000 — — — — 76,000 (208 ) 75,792
Greater Boston L+1.35 2.00 8/23/17 ^(4)^ — 188,120 — — — — 188,120 (1,857 ) 186,263
Greater Boston L+1.50 1.85 1/28/19 ^(5)^ — — — 150,162 — — 150,162 (3,291 ) 146,871
San Diego, Seattle, and Maryland 7.75 8.07 4/1/20 1,285 1,832 1,979 2,138 104,352 — 111,586 (1,336 ) 110,250
San Diego 4.66 4.92 1/1/23 1,103 1,540 1,614 1,692 1,770 29,904 37,623 (444 ) 37,179
Greater Boston 3.93 3.18 3/10/23 — — 1,091 1,505 1,566 77,838 82,000 3,708 85,708
San Francisco 6.50 6.64 7/1/36 19 20 22 23 25 703 812 — 812
Weighted-average interest rate/subtotal 3.83 % 3.90 176,248 267,512 4,706 155,520 107,713 108,445 820,144 (3,566 ) 816,578
$1.5 billion unsecured senior line of credit L+1.10 % ^(6)^ 1.77 1/3/19 — — — 299,000 — — 299,000 — 299,000
2019 Unsecured Senior Bank Term Loan L+1.20 % 1.88 1/3/19 — — — 600,000 — — 600,000 (2,965 ) 597,035
2021 Unsecured Senior Bank Term Loan L+1.10 % 1.74 1/15/21 — — — — — 350,000 350,000 (2,398 ) 347,602
Unsecured senior notes payable 2.75 % 2.95 1/15/20 — — — — 400,000 — 400,000 (2,986 ) 397,014
Unsecured senior notes payable 4.60 % 4.72 4/1/22 — — — — — 550,000 550,000 (3,886 ) 546,114
Unsecured senior notes payable 3.90 % 4.02 6/15/23 — — — — — 500,000 500,000 (4,236 ) 495,764
Unsecured senior notes payable 4.30 % 4.46 1/15/26 — — — — — 300,000 300,000 (4,669 ) 295,331
Unsecured senior notes payable 4.50 % 4.58 7/30/29 — — — — — 300,000 300,000 (2,939 ) 297,061
Unsecured debt weighted average/subtotal 3.26 — — — 899,000 400,000 2,000,000 3,299,000 (24,079 ) 3,274,921
Weighted-average interest rate/total 3.39 % $ 176,248 $ 267,512 $ 4,706 $ 1,054,520 $ 507,713 $ 2,108,445 $ 4,119,144 $ (27,645 ) $ 4,091,499
Balloon payments $ 173,135 $ 264,120 $ — $ 1,049,162 $ 503,979 $ 2,100,487 $ 4,090,883 $ — $ 4,090,883
Principal amortization 3,113 3,392 4,706 5,358 3,734 7,958 28,261 (27,645 ) 616
Total debt $ 176,248 $ 267,512 $ 4,706 $ 1,054,520 $ 507,713 $ 2,108,445 $ 4,119,144 $ (27,645 ) $ 4,091,499
Fixed-rate/hedged variable-rate debt $ 128,427 $ 3,392 $ 4,706 $ 755,358 $ 507,713 $ 2,108,445 $ 3,508,041 $ (22,185 ) $ 3,485,856
Unhedged variable-rate debt 47,821 264,120 — 299,162 — — 611,103 (5,460 ) 605,643
Total debt $ 176,248 $ 267,512 $ 4,706 $ 1,054,520 $ 507,713 $ 2,108,445 $ 4,119,144 $ (27,645 ) $ 4,091,499
(1) Represents the weighted-average interest rate as of the end of the period plus the impact of debt premiums/discounts, interest rate swap agreements, and deferred financing costs.
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(2) Reflects any extension options that we control.
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(3) In April 2016, we repaid the $47.8 million secured note payable with an effective interest rate of 2.83%. In May 2016, we repaid the $126.0 million secured note payable with an effective interest rate of 6.64%.
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(4) We have a one-year option to extend the stated maturity date to August 23, 2018, subject to certain conditions.
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(5) We have two, one-year options to extend the stated maturity date to January 28, 2021, subject to certain conditions.
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(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. Unamortized deferred financing costs related to our unsecured senior line of credit are classified in other assets and are excluded from the calculation of the weighted-average interest rate. Refer to the ASU adopted in January 2016 as described in Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies.”
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8. Secured and unsecured senior debt (continued)
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Interest expense

The following table summarizes interest expense for the three months ended March 31, 2016 and 2015 (in thousands):

Three Months Ended March 31,
2016 2015
Gross interest $ 36,954 $ 34,207
Capitalized interest (12,099 ) (10,971 )
Interest expense $ 24,855 $ 23,236

Repayment of secured notes payable

During the three months ended March 31, 2016, we repaid three secured notes payable aggregating $57.2 million with a weighted-average effective interest rate of 4.36%.

In April 2016, we repaid a $47.8 million secured note payable with a an effective interest rate of 2.83%.

In May 2016, we repaid a $126.0 million secured note payable with an effective interest rate of 6.64%.

Secured construction loans

The following table summarizes our secured construction loans as of March 31, 2016 (dollars in thousands):

Market Stated Rate Maturity Date Outstanding Balance Remaining Commitments Total Aggregate Commitments
259 East Grand Avenue/San Francisco L+1.50% ^(1)^ $ 47,821 $ 7,179 $ 55,000
75/125 Binney Street/Greater Boston L+1.35% 8/23/17 ^(2)^ 188,120 62,280 250,400
50/60 Binney Street/Greater Boston L+1.50% 1/28/19 ^(3)^ 150,162 199,838 350,000
$ 386,103 $ 269,297 $ 655,400
(1) In April 2016, we repaid this secured note payable with an effective interest rate of 2.83%.
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(2) We have a one-year option to extend the stated maturity date to August 23, 2018, subject to certain conditions.
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(3) We have two, one-year options to extend the stated maturity date to January 28, 2021, subject to certain conditions.
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During April 2016, we executed the following secured construction loan for our development project at 100 Binney Street, located in our Cambridge submarket (dollars in thousands):

Market Stated Rate Maturity Date Outstanding Balance Remaining Commitments Total Aggregate Commitments
100 Binney Street/Greater Boston L+2.00% 4/20/19 ^(1)^ $ — $ 304,281 $ 304,281
(1) We have two, one-year options to extend the stated maturity date to April 20, 2021, subject to certain conditions.
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9. Interest rate swap agreements
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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, unsecured senior bank term loans, and secured notes payable. 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 three months ended March 31, 2016 and 2015, 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 $5.8 million in accumulated other comprehensive income (loss) to earnings as an increase to interest expense. As of March 31, 2016, and December 31, 2015, 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 7 – “Fair Value Measurements” to our unaudited consolidated financial statements under Item 1 of this report. 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 March 31, 2016, it could have been required to settle its obligations under the agreements at their termination value of $10.6 million.

We had the following outstanding interest rate swap agreements that were designated as cash flow hedges of interest rate risk as of March 31, 2016 (dollars in thousands):

Number of Contracts Weighted-Average Interest Pay Rate^(1)^ Fair Value as of 3/31/16 Notional Amount in Effect as of
Effective Date Maturity Date 3/31/16 12/31/16 12/31/17 12/31/18
September 1, 2015 March 31, 2017 2 0.57% $ (5 ) $ 100,000 $ 100,000 $ — $ —
March 31, 2016 March 31, 2017 11 1.15% (5,830 ) 1,000,000 1,000,000 — —
March 31, 2017 March 31, 2018 15 1.31% (4,636 ) — — 900,000 —
March 29, 2018 March 31, 2019 4 1.06% (50 ) — — — 250,000
Total $ (10,521 ) ^(2)^ $ 1,100,000 $ 1,100,000 $ 900,000 $ 250,000
(1) In addition to the interest pay rate for each swap agreement, interest is payable at an applicable margin for borrowings outstanding as of March 31, 2016. 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%.
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(2) This total represents the net of the fair value of interest rate swap agreements in liability position of $10.5 million and fair value of interest rate swap agreements in asset position of $25 thousand. Refer to Note 7 – “Fair Value Measurements” to our unaudited consolidated financial statements under Item 1 of this report.
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10. Accounts payable, accrued expenses, and tenant security deposits
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The following table summarizes the components of accounts payable, accrued expenses, and tenant security deposits as of March 31, 2016, and December 31, 2015 (in thousands):

March 31, 2016 December 31, 2015
Accounts payable and accrued expenses $ 266,266 $ 239,838
Acquired below-market leases 24,986 26,018
Conditional asset retirement obligations 5,727 5,777
Deferred rent liabilities 26,261 27,664
Interest rate swap liabilities 10,546 4,314
Unearned rent and tenant security deposits 213,072 211,605
Other liabilities^(1)^ 81,609 74,140
Total $ 628,467 $ 589,356
(1) The balance as of March 31, 2016 includes a $54.0 million liability related to the second installment paid on April 1, 2016, for our acquisition of the remaining noncontrolling interest in our 1.2 million RSF campus at Alexandria Technology Square® in our Cambridge submarket. Refer to Note 15 – “Subsequent Events” to our unaudited consolidated financial statements under Item 1 of this report for additional information.
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Some of our properties may contain asbestos, which, under certain conditions, requires remediation. Although we believe that the asbestos is appropriately contained in accordance with environmental regulations, our practice is to remediate the asbestos upon the development or redevelopment of the affected property. We recognize a liability for the fair value of a conditional asset retirement obligation (including asbestos) when the fair value of the liability can be reasonably estimated. In addition, for certain properties, we have not recognized an asset retirement obligation when there is an indeterminate settlement date for the obligation because the period in which we may remediate the obligation may not be estimated with any level of precision to provide for a meaningful estimate of the retirement obligation. These conditional asset retirement obligations are included in the table above.

11. 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 outstanding during the period. We had no dilutive securities outstanding during the three months ended March 31, 2016 and 2015.

11. Earnings per share (continued)

The table below is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three months ended March 31, 2016 and 2015 (in thousands, except per share amounts):

Three Months Ended March 31,
2016 2015
Income from continuing operations $ 9,966 $ 25,051
Net income attributable to noncontrolling interests (4,030 ) (492 )
Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders 5,936 24,559
Dividends on preferred stock (5,907 ) (6,247 )
Preferred stock redemption charge (3,046 ) —
Net income attributable to unvested restricted stock awards (801 ) (483 )
(Loss) income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted (3,818 ) 17,829
Loss from discontinued operations — (43 )
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted $ (3,818 ) $ 17,786
Weighted-average shares of common stock outstanding – basic and diluted 72,584 71,366
EPS attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted:
Continuing operations $ (0.05 ) $ 0.25
Discontinued operations — —
EPS – basic and diluted $ (0.05 ) $ 0.25

For purposes of calculating diluted EPS, we did not assume conversion of our Series D Convertible Preferred Stock for the three months ended March 31, 2016 and 2015, since the impact was antidilutive to EPS attributable to Alexandria Real Estate Equities, Inc.’s common stockholders from continuing operations during those periods. Refer to “7.00% Series D Convertible Preferred Stock redemption” in Note 12 – “Stockholders’ Equity” for further discussion of the partial redemption of our Series D Convertible Preferred Stock.

12. Stockholders’ equity

“At the market” common stock offering program

In December 2015, we established an “at the market” common stock offering program, under which we may sell, from time to time, up to an aggregate of $450.0 million of our common stock through our various sales agents during a three-year period. During the three months ended March 31, 2016, we sold an aggregate of 293,235 shares of common stock for gross proceeds of $25.9 million, or $88.44 per share, and net proceeds of approximately $25.3 million, including commissions and other expenses of approximately $0.6 million. We used the proceeds from the sales to reduce amounts outstanding under our unsecured senior line of credit. As of March 31, 2016, the remaining amount available under our current program through the future stock sales was approximately $349.1 million.

7.00% Series D Convertible Preferred Stock redemption

During the three months ended March 31, 2016, we repurchased 931,934 outstanding shares of our Series D Convertible Preferred Stock at an aggregate price of $25.6 million, or $27.49 per share. We recognized a preferred stock redemption charge of $3.0 million during the three months ended March 31, 2016, including the write-off of original issuance costs of approximately $727 thousand.

Dividends

In March 2016, we declared cash dividends on our common stock for the first quarter of 2016, aggregating $59.1 million, or $0.80 per share. Also in March 2016, we declared cash dividends on our Series D Convertible Preferred Stock for the first quarter of 2016, aggregating approximately $3.8 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 first quarter of 2016, aggregating approximately $2.1 million, or $0.403125 per share. In April 2016, we paid the cash dividends on our common stock, Series D Convertible Preferred Stock, and Series E Preferred Stock for the first quarter of 2016.

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) attributable to Alexandria consists of the following (in thousands):

Net Unrealized Gain on Available-for- Sale Equity Securities Net Unrealized Loss on Interest Rate<br>Swap Agreements Net Unrealized Loss on Foreign Currency Translation Total
Balance as of December 31, 2015 $ 117,599 $ (3,718 ) $ (64,690 ) $ 49,191
Other comprehensive (loss) income before reclassifications (47,423 ) (6,961 ) 3,528 (50,856 )
Amounts reclassified from other comprehensive (income) loss (7,026 ) 158 — (6,868 )
(54,449 ) (6,803 ) 3,528 (57,724 )
Amounts attributable to noncontrolling interest — — — —
Net other comprehensive (loss) income (54,449 ) (6,803 ) 3,528 (57,724 )
Balance as of March 31, 2016 $ 63,150 $ (10,521 ) $ (61,162 ) $ (8,533 )

Preferred stock and excess stock authorizations

Our charter authorizes the issuance of up to 100.0 million shares of preferred stock, of which 13.8 million shares were issued and outstanding as of March 31, 2016. 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 March 31, 2016.

13. Noncontrolling interests

Noncontrolling interests represent the third-party interests in certain entities in which we have a controlling interest. These entities owned eight projects as of March 31, 2016, 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.

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 campus at Alexandria Technology Square^®^ in our Cambridge submarket 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 was paid on April 1, 2016. The final payment was recorded as a reduction of the noncontrolling interest purchase liability which was established upon execution of the purchase agreement.

The following table represents income from continuing operations and discontinued operations attributable to Alexandria Real Estate Equities, Inc., for the three months ended March 31, 2016 and 2015, excluding the amounts attributable to these noncontrolling interests (in thousands):

Three Months Ended March 31,
2016 2015
Income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s stockholders $ 5,936 $ 24,559
Loss from discontinued operations — (43 )
Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders $ 5,936 $ 24,516

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. 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.

14. Assets classified as held for sale

As of March 31, 2016, three operating properties in North America with an aggregate 161,690 RSF and two land parcels in India with an aggregate 28 acres of land were classified as held for sale, none of which met the criteria for classification as a discontinued operation in our consolidated financial statements.

Assets located in North America

The following is a summary of net assets held for sale in North America as of March 31, 2016, and December 31, 2015 (in thousands):

March 31, 2016 December 31, 2015
Total assets $ 19,356 $ 19,083
Total liabilities — —
Net assets classified as held for sale – North America $ 19,356 $ 19,083

The following is a summary of the income included in our income from continuing operations for the three months ended March 31, 2016 and 2015, from assets classified as held for sale, not qualifying as discontinued operations (in thousands):

Three Months Ended March 31,
2016 2015
Total revenues $ 1,003 $ 1,671
Operating expenses (359 ) (560 )
Total revenues less operating expenses 644 1,111
Depreciation expense (105 ) (335 )
Income from assets classified as held for sale – North America ^(1)^ $ 539 $ 776
(1) Includes the results of operations of three properties with an aggregate 161,690 RSF that were classified as held for sale as of March 31, 2016, and four properties with an aggregate 279,733 RSF that were sold subsequent to three months ended March 31, 2015. These properties did not qualify for classification as discontinued operations. For additional information, refer to Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies” to our unaudited consolidated financial statements under Item 1 of this report.
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Assets located in Asia

As of March 31, 2016, we had eight operating properties aggregating 1.2 million RSF with an average occupancy of 70.2% located in our China and India submarkets. Our properties located in Asia included four completed development projects, three completed redevelopement projects, and one property that was acquired in a sale/leaseback transaction. Several of our properties located in Asia were recently developed/redeveloped over the past few years, including one building which is substantially fully leased to Novartis AG and GlaxoSmithKline plc and had a yield on cost of 10.9% for the three months ended March 31, 2016, on an annualized basis. Key tenants at these operating properties include Novartis AG, GlaxoSmithKline plc, and Emerson Electric Company. In addition, as of March 31, 2016, we had land parcels in India that we held for future ground-up development consisting of 168 acres. As of December 31, 2015, and March 31, 2016, all our investments in Asia were classified as held for use, except for two land parcels in India, which were classified as held for sale as of March 31, 2016. As of December 31, 2015, and March 31, 2016, we concluded that all our investments that were classified as held for use were recoverable under the held for use model as the projected probability-weighted undiscounted cash flows from each operating property and land parcel exceeded our net book value, including our projected costs to complete or develop each land parcel.

14. Assets classified as held for sale (continued)

Held for sale land parcels in India as of March 31, 2016

On March 31, 2016, we evaluated two separate potential transactions to sell land parcels in our India submarket aggregating 28 acres. We determined that these land parcels met the criteria for classification as held for sale including, among others, the following: (i) management having the authority committed to sell the real estate, and (ii) the sale was probable within one year. Upon classification as held for sale, we recognized an impairment charge of $29.0 million, to lower the carrying amount of the real estate to its estimated fair value less cost to sell of approximately $10.2 million. In determining the carrying amount for evaluating the real estate for impairment, we considered our net book value, cost to sell, and a $10.6 million cumulative foreign currency translation loss that will be reclassified to net income when realized upon sale or disposition. As of March 31, 2016, we only had one binding sale agreement related to one land parcel. This land parcel was sold on May 2, 2016, at no gain or loss.

Subsequent event – remaining real estate holdings in Asia

On April 22, 2016, we decided to monetize our remaining real estate investments located in Asia in order to invest capital into our highly leased value-creation pipeline. We determined that these investments met the criteria for classification as held for sale when we achieved the following, among other criteria: (i) committed to sell all of our real estate investments in Asia, (ii) obtained approval from our Board of Directors, and (iii) determined that the sale of each property/land parcel was probable within one year. Upon classification as held for sale, we recognized an impairment charge of $153.0 million in April 2016 related to our remaining real estate investments located in Asia, to lower the carrying costs of the real estate to its estimated fair value less cost to sell. In determining the carrying amount for evaluating the real estate for impairment, we considered our net book value, cost to sell, and a $40.2 million cumulative foreign currency translation loss that will be reclassified to net income when realized upon sale or disposition.

Fair value and estimated sales proceeds

The fair value considered in our impairment of each investment was determined based on the following: (i) a contractual sales price for one parcel, (ii) preliminary non-binding letters of intent, (iii) significant other observable inputs, including the consideration of certain local government land acquisition programs, and (iv) discounted cash flow analyses. We expect total sales from Asia to generate approximately $104.4 million of proceeds after disposition costs. We believe our real estate investments in Asia will be monetized in several separate transactions over the next 12 months.

The following is a summary of net assets and operating information of our real estate investments in Asia, including (i) two land parcels aggregating 28 acres that were classified as held for sale as of March 31, 2016, and (ii) eight operating properties aggregating 1.2 million RSF and land parcels aggregating 168 acres, which met the criteria for classification as held for sale in late April 2016 (in thousands):

March 31, 2016 December 31, 2015
Total assets $ 220,424 $ 247,560
Total liabilities (12,866 ) (11,566 )
Total accumulated other comprehensive loss ^(1)^ 49,787 49,838
Net assets located in Asia as of March 31, 2016 ^(2)^ $ 257,345 $ 285,832
Impairment recognized in April 2016 (152,968 )
Net assets located in Asia after impairment recognized in April 2016 ^(3)^ $ 104,377
(1) Represents the cumulative foreign currency translation losses of $52.6 million and gains of $1.8 million related to our investments located in our India and China submarkets, respectively, that will be reclassified to net income only when realized upon sale or disposition.
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(2) This amount includes a $29.0 million impairment charge we recognized in March 2016, for two land parcels that met the criteria for classification as held for sale. The estimated sales price of these two land parcels is approximately $11.9 million.
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(3) Represents estimated sales price of $113.0 million less costs to sell.
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14. Assets classified as held for sale (continued)
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Three Months Ended March 31,
--- --- --- --- --- --- ---
(In thousands) 2016 2015
Total revenues $ 3,219 $ 2,823
Operating expenses (2,588 ) (1,754 )
631 1,069
General and administrative expense (684 ) (1,374 )
(53 ) (305 )
Depreciation expense (2,248 ) (2,125 )
Impairment of real estate ^(1)^ (28,980 ) (14,510 )
Net loss related to real estate located in Asia $ (31,281 ) $ (16,940 )
(1) Represents the impairment charge we recognized in March 2016, for two land parcels in India that met the criteria for classification as held for sale. The estimated sales price of these two land parcels is approximately $11.9 million.
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Discontinued operations

In late April 2016, we evaluated whether our real estate investments in Asia met the criteria for classification as discontinued operations, including, among others: (i) if the properties meet the held for sale criteria, and (ii) if the sale of these assets represents a strategic shift that has or will have a major effect on our operations and financial results. In our assessment, we considered, among other factors, that our total revenue from properties located in Asia was approximately $3.2 million, or 1.5% of our total consolidated revenues of $216.1 million, for the three months ended March 31, 2016. We also noted total assets related to our investment in Asia were approximately $220.4 million, or 2.5% of our total assets of $9.0 billion, as of March 31, 2016. Consequently, we concluded that the monetization of our real estate investments in Asia did not represent a strategic shift that will have a major effect in our operations and financial results and therefore did not meet the criteria for classification as discontinued operations.

15. Subsequent events

16020 Industrial Drive

In April 2016, we completed the sale of a 71,000 RSF R&D/warehouse property, located at 16020 Industrial Drive in Maryland for approximately $6.4 million with no gain or loss.

Remaining real estate holdings in Asia

In April 2016, we determined that our remaining real estate investments in Asia met the criteria for classification as held for sale. Upon classification as held for sale, we recognized an impairment charge related to our remaining Asia real estate holdings. For additional information, refer to the section titled “Assets Located in Asia” in Note 14 – “Assets Classified as Held for Sale” to our accompanying unaudited consolidated financial statements under Item 1 of this report.

Secured construction loans

In April 2016, we closed a secured construction loan for our development project at 100 Binney Street in our Cambridge submarket. For additional information, refer to Note 8 – “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.

Repayment of secured notes payable

In April and May 2016, we repaid two secured notes payable. For additional information, refer to Note 8 – “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.

Purchase of noncontrolling interest

In April 2016, we completed the purchase of the remaining outstanding noncontrolling interest in our campus at Alexandria Technology Square^®^ in our Cambridge submarket. For additional information, refer to Note 13 – “Noncontrolling Interests” to our unaudited consolidated financial statements under Item 1 of this report for a discussion of our secured construction loans.

16. 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 March 31, 2016 and December 31, 2015, the condensed consolidating statements of income and comprehensive income for the three months ended March 31, 2016 and 2015, and the condensed consolidating statements of cash flows for the three months ended March 31, 2016 and 2015, 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.

16. Condensed consolidating financial information (continued)

Condensed Consolidating Balance Sheet

as of March 31, 2016

(In thousands)

(Unaudited)

Alexandria Real Estate Equities, Inc.<br><br>(Issuer) Alexandria<br><br>Real Estate<br><br>Equities, L.P.<br><br>(Guarantor<br><br>Subsidiary) Combined<br><br>Non-<br><br>Guarantor<br><br>Subsidiaries Eliminations Consolidated
Assets
Investments in real estate $ — $ — $ 7,741,466 $ — $ 7,741,466
Investments in unconsolidated real estate JVs — — 127,165 — 127,165
Cash and cash equivalents 34,027 — 112,170 — 146,197
Restricted cash 81 — 14,804 — 14,885
Tenant receivables — — 9,979 — 9,979
Deferred rent — — 293,144 — 293,144
Deferred leasing costs — — 192,418 — 192,418
Investments — 4,687 311,476 — 316,163
Investments in and advances to affiliates 7,253,538 6,584,962 134,034 (13,972,534 ) —
Other assets 35,367 — 94,748 — 130,115
Total assets $ 7,323,013 $ 6,589,649 $ 9,031,404 $ (13,972,534 ) $ 8,971,532
Liabilities, Noncontrolling Interests, and Equity
Secured notes payable $ — $ — $ 816,578 $ — $ 816,578
Unsecured senior notes payable 2,031,284 — — — 2,031,284
Unsecured senior line of credit 299,000 — — — 299,000
Unsecured senior bank term loans 944,637 — — — 944,637
Accounts payable, accrued expenses, and tenant security deposits 118,384 — 510,083 — 628,467
Dividends payable 63,988 — 287 — 64,275
Total liabilities 3,457,293 — 1,326,948 — 4,784,241
Redeemable noncontrolling interests — — 14,218 — 14,218
Alexandria Real Estate Equities, Inc.’s stockholders’ equity 3,865,720 6,589,649 7,382,885 (13,972,534 ) 3,865,720
Noncontrolling interests — — 307,353 — 307,353
Total equity 3,865,720 6,589,649 7,690,238 (13,972,534 ) 4,173,073
Total liabilities, noncontrolling interests, and equity $ 7,323,013 $ 6,589,649 $ 9,031,404 $ (13,972,534 ) $ 8,971,532
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Balance Sheet

as of December 31, 2015

(In thousands)

(Unaudited)

Alexandria<br><br>Real Estate<br><br>Equities, Inc.<br><br>(Issuer) Alexandria<br><br>Real Estate<br><br>Equities, L.P.<br><br>(Guarantor<br><br>Subsidiary) Combined<br><br>Non-<br><br>Guarantor<br><br>Subsidiaries Eliminations Consolidated
Assets
Investments in real estate $ — $ — $ 7,629,922 $ — $ 7,629,922
Investments in unconsolidated real estate JVs — — 127,212 — 127,212
Cash and cash equivalents 31,982 — 93,116 — 125,098
Restricted cash 91 — 28,781 — 28,872
Tenant receivables — — 10,485 — 10,485
Deferred rent — — 280,570 — 280,570
Deferred leasing costs — — 192,081 — 192,081
Investments — 4,702 348,763 — 353,465
Investments in and advances to affiliates 7,194,092 6,490,009 132,121 (13,816,222 ) —
Other assets 36,808 — 96,504 — 133,312
Total assets $ 7,262,973 $ 6,494,711 $ 8,939,555 $ (13,816,222 ) $ 8,881,017
Liabilities, Noncontrolling Interests, and Equity
Secured notes payable $ — $ — $ 809,818 $ — $ 809,818
Unsecured senior notes payable 2,030,631 — — — 2,030,631
Unsecured senior line of credit 151,000 — — — 151,000
Unsecured senior bank term loans 944,243 — — — 944,243
Accounts payable, accrued expenses, and tenant security deposits 100,294 — 489,062 — 589,356
Dividends payable 61,718 — 287 — 62,005
Total liabilities 3,287,886 — 1,299,167 — 4,587,053
Redeemable noncontrolling interests — — 14,218 — 14,218
Alexandria Real Estate Equities, Inc.’s stockholders’ equity 3,975,087 6,494,711 7,321,511 (13,816,222 ) 3,975,087
Noncontrolling interests — — 304,659 — 304,659
Total equity 3,975,087 6,494,711 7,626,170 (13,816,222 ) 4,279,746
Total liabilities, noncontrolling interests, and equity $ 7,262,973 $ 6,494,711 $ 8,939,555 $ (13,816,222 ) $ 8,881,017
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Income

for the Three Months Ended March 31, 2016

(In thousands)

(Unaudited)

Alexandria<br><br>Real Estate<br><br>Equities, Inc.<br><br>(Issuer) Alexandria<br><br>Real Estate<br><br>Equities, L.P.<br><br>(Guarantor<br><br>Subsidiary) Combined<br><br>Non-<br><br>Guarantor<br><br>Subsidiaries Eliminations Consolidated
Revenues:
Rental $ — $ — $ 158,276 $ — $ 158,276
Tenant recoveries — — 52,597 — 52,597
Other income 3,075 (4 ) 5,741 (3,596 ) 5,216
Total revenues 3,075 (4 ) 216,614 (3,596 ) 216,089
Expenses:
Rental operations — — 65,837 — 65,837
General and administrative 14,318 — 4,466 (3,596 ) 15,188
Interest 19,222 — 5,633 — 24,855
Depreciation and amortization 1,614 — 69,252 — 70,866
Impairment of real estate — — 28,980 — 28,980
Total expenses 35,154 — 174,168 (3,596 ) 205,726
Equity in loss of unconsolidated real estate JVs — — (397 ) — (397 )
Equity in earnings of affiliates 38,015 30,679 639 (69,333 ) —
Net income 5,936 30,675 42,688 (69,333 ) 9,966
Net income attributable to noncontrolling interests — — (4,030 ) — (4,030 )
Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders 5,936 30,675 38,658 (69,333 ) 5,936
Dividends on preferred stock (5,907 ) — — — (5,907 )
Preferred stock redemption charge (3,046 ) — — — (3,046 )
Net income attributable to unvested restricted stock awards (801 ) — — — (801 )
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders $ (3,818 ) $ 30,675 $ 38,658 $ (69,333 ) $ (3,818 )
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Income

for the Three Months Ended March 31, 2015

(In thousands)

(Unaudited)

Alexandria<br><br>Real Estate<br><br>Equities, Inc.<br><br>(Issuer) Alexandria<br><br>Real Estate<br><br>Equities, L.P.<br><br>(Guarantor<br><br>Subsidiary) Combined<br><br>Non-<br><br>Guarantor<br><br>Subsidiaries Eliminations Consolidated
Revenues:
Rental $ — $ — $ 143,608 $ — $ 143,608
Tenant recoveries — — 48,394 — 48,394
Other income 3,026 (41 ) 5,564 (3,798 ) 4,751
Total revenues 3,026 (41 ) 197,566 (3,798 ) 196,753
Expenses:
Rental operations — — 61,223 — 61,223
General and administrative 12,226 — 5,959 (3,798 ) 14,387
Interest 17,157 — 6,079 — 23,236
Depreciation and amortization 1,247 — 57,673 — 58,920
Impairment of real estate — — 14,510 — 14,510
Total expenses 30,630 — 145,444 (3,798 ) 172,276
Equity in earnings of unconsolidated real estate JVs — — 574 — 574
Equity in earnings of affiliates 52,120 45,590 917 (98,627 ) —
Income from continuing operations 24,516 45,549 53,613 (98,627 ) 25,051
Loss from discontinued operations — — (43 ) — (43 )
Net income 24,516 45,549 53,570 (98,627 ) 25,008
Net income attributable to noncontrolling interests — — (492 ) — (492 )
Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders 24,516 45,549 53,078 (98,627 ) 24,516
Dividends on preferred stock (6,247 ) — — — (6,247 )
Net income attributable to unvested restricted stock awards (483 ) — — — (483 )
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders $ 17,786 $ 45,549 $ 53,078 $ (98,627 ) $ 17,786
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Comprehensive Income

for the Three Months Ended March 31, 2016

(In thousands)

(Unaudited)

Alexandria<br><br>Real Estate<br><br>Equities, Inc.<br><br>(Issuer) Alexandria<br><br>Real Estate<br><br>Equities, L.P.<br><br>(Guarantor<br><br>Subsidiary) Combined<br><br>Non-<br><br>Guarantor<br><br>Subsidiaries Eliminations Consolidated
Net income $ 5,936 $ 30,675 $ 42,688 $ (69,333 ) $ 9,966
Other comprehensive loss:
Unrealized (losses) gains on available-for-sale equity securities:
Unrealized holding losses arising during the period — (23 ) (47,400 ) — (47,423 )
Reclassification adjustment for losses (gains) included in net income — 11 (7,037 ) — (7,026 )
Unrealized (losses) gains on available-for-sale equity securities, net — (12 ) (54,437 ) — (54,449 )
Unrealized losses on interest rate swap agreements:
Unrealized interest rate swap losses arising during the period (6,961 ) — — — (6,961 )
Reclassification adjustment for amortization of interest expense included in net income 158 — — — 158
Unrealized losses on interest rate swap agreements, net (6,803 ) — — — (6,803 )
Unrealized gains on foreign currency translation:
Unrealized foreign currency translation gains during the period — — 3,528 — 3,528
Unrealized gains on foreign currency translation, net — — 3,528 — 3,528
Total other comprehensive loss (6,803 ) (12 ) (50,909 ) — (57,724 )
Comprehensive (loss) income (867 ) 30,663 (8,221 ) (69,333 ) (47,758 )
Less: comprehensive income attributable to noncontrolling interests — — (4,030 ) — (4,030 )
Comprehensive income (loss) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders $ (867 ) $ 30,663 $ (12,251 ) $ (69,333 ) $ (51,788 )
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Comprehensive Income

for the Three Months Ended March 31, 2015

(In thousands)

(Unaudited)

Alexandria<br><br>Real Estate<br><br>Equities, Inc.<br><br>(Issuer) Alexandria<br><br>Real Estate<br><br>Equities, L.P.<br><br>(Guarantor<br><br>Subsidiary) Combined<br><br>Non-<br><br>Guarantor<br><br>Subsidiaries Eliminations Consolidated
Net income $ 24,516 $ 45,549 $ 53,570 $ (98,627 ) $ 25,008
Other comprehensive (loss) income:
Unrealized (losses) gains on available-for-sale equity securities:
Unrealized holding (losses) gains arising during the period — (54 ) 28,489 — 28,435
Reclassification adjustment for losses included in net income — 41 1,062 — 1,103
Unrealized (losses) gains on available-for-sale equity securities, net — (13 ) 29,551 — 29,538
Unrealized losses on interest rate swap agreements:
Unrealized interest rate swap losses arising during the period (3,013 ) — — — (3,013 )
Reclassification adjustment for amortization of interest expense included in net income 505 — — — 505
Unrealized losses on interest rate swap agreements, net (2,508 ) — — — (2,508 )
Unrealized gains on foreign currency translation:
Unrealized foreign currency translation losses during the period — — (6,271 ) — (6,271 )
Reclassification adjustment for losses included in net income — — 9,236 — 9,236
Unrealized gains on foreign currency translation, net — — 2,965 — 2,965
Total other comprehensive (loss) income (2,508 ) (13 ) 32,516 — 29,995
Comprehensive income 22,008 45,536 86,086 (98,627 ) 55,003
Less: comprehensive income attributable to noncontrolling interests — — (646 ) — (646 )
Comprehensive income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders $ 22,008 $ 45,536 $ 85,440 $ (98,627 ) $ 54,357
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Cash Flows

for the Three Months Ended March 31, 2016

(In thousands)

(Unaudited)

Alexandria Real<br><br>Estate Equities,<br><br>Inc. (Issuer) Alexandria Real<br><br>Estate Equities,<br><br>L.P. (Guarantor<br><br>Subsidiary) Combined<br><br>Non-Guarantor<br><br>Subsidiaries Eliminations Consolidated
Operating Activities
Net income $ 5,936 $ 30,675 $ 42,688 $ (69,333 ) $ 9,966
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 1,614 — 69,252 — 70,866
Impairment of real estate — — 28,980 — 28,980
Equity in losses of unconsolidated real estate JVs — — 397 — 397
Distributions of earnings from unconsolidated real estate JVs — — 98 — 98
Amortization of loan fees 1,934 — 826 — 2,760
Amortization of debt discounts (premiums) 106 — (192 ) — (86 )
Amortization of acquired below-market leases — — (974 ) — (974 )
Deferred rent — — (12,138 ) — (12,138 )
Stock compensation expense 5,439 — — — 5,439
Equity in earnings of affiliates (38,015 ) (30,679 ) (639 ) 69,333 —
Investment gains — (7 ) (5,884 ) — (5,891 )
Investment losses — 11 1,771 — 1,782
Changes in operating assets and liabilities:
Restricted cash 10 — 661 — 671
Tenant receivables — — 521 — 521
Deferred leasing costs — — (7,083 ) — (7,083 )
Other assets (1,733 ) — (792 ) — (2,525 )
Accounts payable, accrued expenses, and tenant security deposits 11,856 — (2,857 ) — 8,999
Net cash (used in) provided by operating activities (12,853 ) — 114,635 — 101,782
Investing Activities
Additions to real estate — — (159,501 ) — (159,501 )
Investments in unconsolidated real estate JVs — — (449 ) — (449 )
Investments in subsidiaries (21,431 ) (64,275 ) (1,273 ) 86,979 —
Additions to investments — — (22,085 ) — (22,085 )
Sales of investments — — 10,913 — 10,913
Net cash used in investing activities $ (21,431 ) $ (64,275 ) $ (172,395 ) $ 86,979 $ (171,122 )
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Cash Flows (continued)

for the Three Months Ended March 31, 2016

(In thousands)

(Unaudited)

Alexandria Real<br>Estate Equities,<br>Inc. (Issuer) Alexandria Real<br>Estate Equities,<br>L.P. (Guarantor<br>Subsidiary) Combined<br>Non-Guarantor<br>Subsidiaries Eliminations Consolidated
Financing Activities
Borrowings from secured notes payable $ — $ — $ 64,922 $ — $ 64,922
Repayments of borrowings from secured notes payable — — (58,657 ) — (58,657 )
Borrowings from unsecured senior line of credit 555,000 — — — 555,000
Repayments of borrowings from unsecured senior line of credit (407,000 ) — — — (407,000 )
Transfer to/from parent company (48,594 ) 64,275 71,298 (86,979 ) —
Change in restricted cash related to financing activities — — 8,316 — 8,316
Payment of loan fees — — (377 ) — (377 )
Redemption of Series D cumulative convertible preferred stock (25,618 ) — — — (25,618 )
Proceeds from the issuance of common stock 25,278 — — — 25,278
Dividends on common stock (56,490 ) — — — (56,490 )
Dividends on preferred stock (6,247 ) — — — (6,247 )
Financing costs paid for sales of noncontrolling interests — — (6,420 ) — (6,420 )
Distributions to noncontrolling interests — — (1,927 ) — (1,927 )
Net cash provided by financing activities 36,329 64,275 77,155 (86,979 ) 90,780
Effect of foreign exchange rate changes on cash and cash equivalents — — (341 ) — (341 )
Net increase in cash and cash equivalents 2,045 — 19,054 — 21,099
Cash and cash equivalents as of the beginning of period 31,982 — 93,116 — 125,098
Cash and cash equivalents as of the end of period $ 34,027 $ — $ 112,170 $ — $ 146,197
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest, net of interest capitalized $ 8,889 $ — $ 5,179 $ — $ 14,068
Non-Cash Investing Activities
Change in accrued construction $ — $ — $ — $ 29,197 $ 29,197
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Cash Flows

for the Three Months Ended March 31, 2015

(In thousands)

(Unaudited)

Alexandria Real<br><br>Estate Equities,<br><br>Inc. (Issuer) Alexandria Real<br><br>Estate Equities,<br><br>L.P. (Guarantor<br><br>Subsidiary) Combined<br><br>Non-Guarantor<br><br>Subsidiaries Eliminations Consolidated
Operating Activities
Net income $ 24,516 $ 45,549 $ 53,570 $ (98,627 ) $ 25,008
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 1,247 — 57,673 — 58,920
Impairment of real estate — — 14,510 — 14,510
Equity in earnings of unconsolidated real estate JVs — — (574 ) — (574 )
Distributions of earnings from unconsolidated real estate JVs — — 491 — 491
Amortization of loan fees 1,925 — 909 — 2,834
Amortization of debt discounts (premiums) 80 — (162 ) — (82 )
Amortization of acquired below-market leases — — (933 ) — (933 )
Deferred rent — — (9,901 ) — (9,901 )
Stock compensation expense 3,690 — — — 3,690
Equity in earnings of affiliates (52,120 ) (45,590 ) (917 ) 98,627 —
Investment gains — — (5,937 ) — (5,937 )
Investment losses — 41 2,184 — 2,225
Changes in operating assets and liabilities:
Restricted cash 4 — (55 ) — (51 )
Tenant receivables — — (102 ) — (102 )
Deferred leasing costs — — (7,131 ) — (7,131 )
Other assets (3,437 ) — 190 — (3,247 )
Accounts payable, accrued expenses, and tenant security deposits 32,795 (23 ) (5,651 ) — 27,121
Net cash provided by (used in) operating activities 8,700 (23 ) 98,164 — 106,841
Investing Activities
Proceeds from sales of real estate — — 67,616 — 67,616
Additions to real estate — — (104,632 ) — (104,632 )
Purchase of real estate — — (93,938 ) — (93,938 )
Deposit for investing activities — — (28,000 ) — (28,000 )
Change in restricted cash related to construction projects — — — — —
Investments in unconsolidated real estate JVs — — (2,539 ) — (2,539 )
Investments in subsidiaries (44,375 ) (2,977 ) (70 ) 47,422 —
Additions to investments — — (15,118 ) — (15,118 )
Sales of investments — — 2,345 — 2,345
Proceeds from repayment of notes receivable — — 4,214 — 4,214
Net cash used in investing activities $ (44,375 ) $ (2,977 ) $ (170,122 ) $ 47,422 $ (170,052 )
16. Condensed consolidating financial information (continued)
--- ---

Condensed Consolidating Statement of Cash Flows (continued)

for the Three Months Ended March 31, 2015

(In thousands)

(Unaudited)

Alexandria Real<br><br>Estate Equities,<br><br>Inc. (Issuer) Alexandria Real<br><br>Estate Equities,<br><br>L.P. (Guarantor<br><br>Subsidiary) Combined<br><br>Non-Guarantor<br><br>Subsidiaries Eliminations Consolidated
Financing Activities
Borrowings from secured notes payable $ — $ — $ 29,585 $ — $ 29,585
Repayments of borrowings from secured notes payable — — (7,934 ) — (7,934 )
Principal borrowings from unsecured senior line of credit 167,000 — — — 167,000
Repayments of borrowings from unsecured senior line of credit (50,000 ) — — — (50,000 )
Transfer to/from parent company (14,038 ) 3,000 58,460 (47,422 ) —
Change in restricted cash related to financing activities — — (1,369 ) — (1,369 )
Payment of loan fees — — (563 ) — (563 )
Dividends on common stock (53,295 ) — — — (53,295 )
Dividends on preferred stock (6,247 ) — — — (6,247 )
Contributions by noncontrolling interests — — 340 — 340
Distributions to noncontrolling interests — — (9,846 ) — (9,846 )
Net cash provided by financing activities 43,420 3,000 68,673 (47,422 ) 67,671
Effect of foreign exchange rate changes on cash and cash equivalents — — 170 — 170
Net increase (decrease) in cash and cash equivalents 7,745 — (3,115 ) — 4,630
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 $ 60,236 $ 63 $ 30,342 $ — $ 90,641
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest, net of interest capitalized $ 10,412 $ — $ 5,102 $ — $ 15,514
Non-Cash Investing Activities
Change in accrued construction $ — $ — $ 7,249 $ — $ 7,249
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 $ — $ — $ (113,967 ) $ — $ (113,967 )

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 tenants.
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• Government factors such as any unfavorable effects resulting from federal, state, local, and/or foreign government policies, laws, and/or funding levels.
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• Global factors such as negative economic, political, financial, credit market, and/or banking conditions.
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• Other factors such as climate change, cyber intrusions, and/or changes in laws, regulations, and financial accounting standards.
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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, 2015. 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.

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 an urban office REIT uniquely focused on world-class collaborative science and technology campuses in AAA innovation cluster locations with a total market capitalization of $11.1 billion and an asset base in North America of 24.5 million square feet as of March 31, 2016. The asset base in North America includes 18.9 million RSF of operating properties and development and redevelopment projects (under construction or pre-construction) and 5.6 million square feet of future ground-up development projects. Alexandria pioneered this niche in 1994 and has since established a dominant market presence in key 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 tenant base, with approximately 52% of total ABR as of March 31, 2016, generated from investment-grade tenants – a REIT industry-leading percentage. Among our top 20 tenants, approximately 81% of total ABR as of March 31, 2016 is generated from investment-grade tenants. Alexandria has a longstanding and proven track record of developing Class A assets clustered in urban science and technology campuses that provide its innovative 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 tenants and to source additional value-creation real estate opportunities.

Executive summary

We began 2016 with a very successful first quarter executed by our best-in-class team, which included the following key highlights:

• FFO per share – diluted, as adjusted, for the three months ended March 31, 2016, of $1.34, up 4.7%, compared to $1.28 for the three months ended March 31, 2015;
• During the three months ended March 31, 2016, Verily, Alphabet Inc.’s life science subsidiary, subleased 407,369 RSF at 249/259/269 East Grand Avenue in our South San Francisco submarket from Amgen Inc. The sublease highlights the continued demand from high-quality science and technology companies in our key urban innovation clusters;
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• Executed leases for 388,872 RSF during the three months ended March 31, 2016, despite minimal contractual lease expirations in 2016 and our highly pre-leased value-creation pipeline;
--- ---
• Rental rate increases of 33.6% and 16.9% (cash basis) on lease renewals and re-leasing of space aggregating 218,342 RSF (included in the 388,872 RSF above);
--- ---
• Same property NOI growth of 5.3% and 6.2% (cash basis) for the three months ended March 31, 2016, compared to the three months ended March 31, 2015;
--- ---
•Disciplined allocation of capital to value-creation pipeline of highly leased Class A buildings in urban innovation clusters: Year of Delivery RSF Leased % Incremental Annual NOI
2016 1,465,977 90% $75 million to $80 million
2017-2018 2,036,828 72% $120 million to $130 million
3,502,805 81% $195 million to $210 million
• Recycling estimated proceeds of $104.4 million from disposition of all our investments in Asia in several separate transactions over the next 12 months. Proceeds will be allocated to development of Class A facilities in high value urban innovation clusters
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• In March 2016, we recognized an impairment charge of $29.0 million for two land parcels in India that met the criteria for classification as held for sale in March 2016. As of March 31, 2016, we only had one binding sale agreement related to one land parcel. This land parcel was sold on May 2, 2016, at a sales price of $7.5 million with no gain or loss.
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• On April 22, 2016, our Board of Directors approved the monetization of our remaining real estate investments in Asia. As a result of this decision, we recognized an aggregate impairment charge of $153.0 million to reduce our net book value to fair value less cost to sell for all of our remaining investments in Asia;
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• $2.0 billion of liquidity, including availability on our $304.3 million secured construction loan for 100 Binney Street closed in April 2016;
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• 7.4x net debt to Adjusted EBITDA – first quarter of 2016 annualized, goal of achieving less than 6.0x;
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• 7.2x net debt to Adjusted EBITDA – trailing 12 months ended March 31, 2016;
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• Common stock dividend for the three months ended March 31, 2016, of $0.80 per common share, up 3 cents, or 4%, over the three months ended December 31, 2015; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also importantly retaining capital for reinvestment.
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Results

Three Months Ended March 31,
(In millions) 2016 2015 Change
Total revenues $ 216.1 $ 196.8 $ 19.3 9.8 %
NOI, including our share of consolidated and unconsolidated real estate JVs $ 145.3 $ 136.4 $ 8.9 6.5 %
FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted $ 97.1 $ 91.3 $ 5.7 6.3 %
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted ^(1)^ $ (3.8 ) $ 17.8 $ (21.6 ) N/A
(Per share)
FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted $ 1.34 $ 1.28 $ 0.06 4.7 %
EPS attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted ^(1)^ $ (0.05 ) $ 0.25 $ (0.30 ) N/A
(1) Results include impairment of real estate of $29.0 million and $14.5 million, or $0.40 and $0.20 per share, and net income attributable to noncontrolling interest of $4.0 million and $492 thousand, or $0.06 and $0.01 per share, for the three months ended March 31, 2016 and 2015, respectively. We also recognized a preferred stock redemption charge of $3.0 million, or $0.04 per share, during the three months ended March 31, 2016.
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Core operating metrics

• All tenants:
• 52% of ABR from investment-grade tenants as of March 31, 2016
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• Top 20 tenants as of March 31, 2016:
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• 81% of ABR from investment-grade tenants
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• 8.2 years weighted-average remaining lease term
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• During the three months ended March 31, 2015, Verily, Alphabet Inc.’s life science subsidiary, subleased 407,369 RSF at 249/259/269 East Grand Avenue in our South San Francisco submarket from Amgen Inc. The sublease highlights the continued demand from high-quality science and technology companies in our key urban innovation clusters
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• Executed leases for 388,872 RSF during the three months ended March 31, 2016, despite minimal contractual lease expirations in 2016 and our highly pre-leased value-creation pipeline:
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• 33.6% and 16.9% (cash basis) rental rate increases on lease renewals and re-leasing of space aggregating 218,342 RSF (included in the 388,872 RSF above)
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• Same property NOI growth of 5.3% and 6.2% (cash basis) for the three months ended March 31, 2016, compared to the three months ended March 31, 2015
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• Occupancy for operating properties in North America of 97.3% as of March 31, 2016
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• Operating margins at 70% for the three months ended March 31, 2016
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• Adjusted EBITDA margin – first quarter of 2016 annualized at 65%
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External growth: visible, multiyear, highly leased value-creation pipeline

• Disciplined allocation of capital to value-creation pipeline of highly leased Class A buildings in urban innovation clusters:
Year of Delivery RSF Leased % Incremental Annual NOI
--- --- --- ---
2016 1,465,977 90% $75 million to $80 million
2017-2018 2,036,828 72% $120 million to $130 million
3,502,805 81% $195 million to $210 million
• Commencement of development project during the three months ended March 31, 2016:
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• 150,000 RSF development project at 505 Brannan Street in our Mission Bay/SoMa submarket; 100% leased to Pinterest, Inc.
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Balance sheet

• $2.0 billion of liquidity, including availability on our $304.3 million secured construction loan for 100 Binney Street closed in April 2016
• 7.4x net debt to Adjusted EBITDA – first quarter of 2016 annualized, with goal of achieving less than 6.0x
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• 7.2x net debt to Adjusted EBITDA – trailing 12 months ended March 31, 2016
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• 3.3x fixed-charge coverage ratio – first quarter of 2016 annualized
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• 3.4x fixed-charge coverage ratio – trailing 12 months ended March 31, 2016
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• Proceeds from sales of investments in life science entities aggregated $10.9 million during the three months ended March 31, 2016
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• Repurchased 931,934 outstanding shares of our Series D Cumulative Convertible Preferred Stock at an aggregate price of $25.6 million, or $27.49 per share, and recognized a preferred stock redemption charge of $3.0 million during the three months ended March 31, 2016
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• Sold an aggregate of 293,235 shares of common stock under our ATM program for gross proceeds of $25.9 million, or $88.44 per share, and net proceeds of approximately $25.3 million during the three months ended March 31, 2016
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• $11.1 billion total market capitalization as of March 31, 2016
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• 16% of gross investments in real estate – North America in value-creation pipeline as of March 31, 2016, with a target range from 10% to 15% as of December 31, 2016
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• Limited debt maturities through 2018 and well-laddered maturity profile
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• 15% unhedged variable-rate debt as a percentage of total debt as of March 31, 2016
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• Executed additional interest rate swap agreements during the three months ended March 31, 2016, with an aggregate notional amount of $500 million, to increase notional hedged variable-rate debt to a minimum of $900 million and $250 million during 2017 and 2018, respectively
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LEED statistics

• 57% of our total ABR will be generated from LEED^^projects upon completion of our in-process projects

Subsequent events

• In April 2016, we closed a secured construction loan with commitments available for borrowing of $304.3 million for our development project at 100 Binney Street in our Cambridge submarket, which bears interest at a rate of LIBOR+200 bps
• On May 2, 2016, we repaid a $126.0 million secured note payable with an effective interest rate of 6.64%
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• In April 2016, we completed the purchase of the remaining outstanding noncontrolling interest in our 1.2 million RSF campus at Alexandria Technology Square^®^ in our Cambridge submarket for $54 million
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• In April 2016, we completed the sale of 16020 Industrial Drive in our Gaithersburg submarket of Maryland for a sales price of $6.4 million
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• Recycling estimated proceeds of $104.4 million from disposition of all our investments in Asia in several separate transactions over the next 12 months. Proceeds will be allocated to development of Class A facilities in high value urban innovation clusters
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• In March 2016, we recognized an impairment charge of $29.0 million for two land parcels in India that met the criteria for classification as held for sale in March 2016. As of March 31, 2016, we only had one binding sale agreement related to one land parcel. This land parcel was sold on May 2, 2016, at a sales price of $7.5 million with no gain or loss
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• On April 22, 2016, our Board of Directors approved the monetization of our remaining real estate investments in Asia. As a result of this decision, we recognized an aggregate impairment charge of $153.0 million to reduce our net book value to fair value less cost to sell for all of our remaining investments in Asia
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Operating summary

Key real estate statistics

The following table presents information regarding our asset base, including unconsolidated real estate joint ventures, as of March 31, 2016, and December 31, 2015:

March 31, 2016 December 31, 2015
(RSF)
Operating properties 15,400,619 15,538,280
Development properties 2,927,660 2,761,428
Redevelopment properties 575,145 574,362
Total properties – North America 18,903,424 18,874,070
Total properties – Asia 1,200,683 1,199,714
Number of properties 198 199
Occupancy in North America at year-end – operating 97.3% 97.2%
Occupancy in North America at year-end – operating and redevelopment 93.8% 93.7%
ABR per occupied RSF – North America $ 41.67 $ 41.17

Leasing

• Executed a total of 41 leases, with a weighted-average lease term of 5.5 years, for 388,872 RSF, including 76,421 RSF related to our development and redevelopment projects during the three months ended March 31, 2016, despite minimal contractual lease expirations in 2016 and our highly pre-leased value-creation pipeline
• Achieved rental rate increases of 33.6% and 16.9% (cash basis) for lease renewals and re-leasing of space aggregating 218,342 RSF (included in 388,872 RSF above) during the three months ended March 31, 2016
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• Increased the occupancy percentage for operating properties in North America by 50 bps to 97.3% since March 31, 2015
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Approximately 68% of the 41 leases executed during the three months ended March 31, 2016, did not include concessions for free rent. During the three months ended March 31, 2016, we granted tenant concessions/free rent averaging 1.1 months with respect to the 388,872 RSF leased.

The following table summarizes our leasing activity at our properties: Three Months Ended<br><br>March 31, 2016 Year Ended<br><br>December 31, 2015
Including<br><br>Straight-Line Rent Cash Basis Including<br><br>Straight-Line Rent Cash Basis
(Dollars are per RSF)
Leasing activity:
Renewed/re-leased space ^(1)^
Rental rate changes 33.6% ^(2)^ 16.9% ^(2)^ 19.6% 9.9%
New rates $ 44.45 $ 42.06 $ 35.70 $ 35.97
Expiring rates $ 33.27 $ 35.97 $ 29.84 $ 32.73
Rentable square footage 218,342 2,209,893
Number of leases 24 146
Tenant improvements/leasing commissions $ 11.34 $ 10.02
Average lease terms 3.8 years 4.7 years
Developed/redeveloped/previously vacant space leased
New rates $ 48.30 $ 45.69 $ 55.24 $ 50.65
Rentable square footage 170,530 2,762,149
Number of leases 17 72
Tenant improvements/leasing commissions $ 21.60 $ 19.63
Average lease terms 7.7 years 11.9 years
Leasing activity summary (totals):
New rates $ 46.14 $ 43.65 $ 46.55 $ 44.13
Rentable square footage 388,872 ^(3)^ 4,972,042
Number of leases 41 218
Tenant improvements/leasing commissions $ 15.84 $ 15.36
Average lease terms 5.5 years 8.7 years
Lease expirations ^(1)^
Expiring rates $ 31.18 $ 33.41 $ 28.32 $ 30.80
Rentable square footage 364,566 2,801,883
Number of leases 30 197

Leasing activity includes 100% of results for properties managed by us. Refer to the “Non-GAAP Measures” section within this Item 2 for a description of the basis used to compute the measures above.

(1) Excludes 14 month-to-month leases for 27,108 RSF and 16 month-to-month leases for 30,810 RSF as of March 31, 2016, and December 31, 2015, respectively.
(2) Rental rate increases for the three months ended March 31, 2016, were driven by four leases that generated average increases in rental rates of 47%, and 29% on a cash basis. Refer to our “Projected Results” on page 81 for estimated rental rate growth for the year ending December 31, 2016.
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(3) During the three months ended March 31, 2016, we granted tenant concessions/free rent averaging 1.1 months with respect to the 388,872 RSF leased.
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Summary of contractual lease expirations

The following table summarizes information with respect to the contractual lease expirations at our properties as of March 31, 2016:

Year Number of Leases RSF Percentage of<br><br>Aggregate Total RSF ABR (per RSF)
2016 58 ^(1)^ 798,034 ^(1)^ 5.0 % $ 34.42
2017 83 1,344,211 8.5 % $ 28.96
2018 92 1,861,899 11.8 % $ 38.84
2019 73 1,393,567 8.8 % $ 36.80
2020 68 1,599,106 10.1 % $ 36.50
2021 55 1,536,252 9.7 % $ 39.03
2022 33 1,074,181 6.8 % $ 34.51
2023 24 1,284,999 8.1 % $ 37.87
2024 17 867,256 5.5 % $ 46.43
2025 18 677,456 4.3 % $ 34.49
Thereafter 39 3,373,335 21.4 % $ 48.10

Leasing expirations include 100% of the RSF for properties managed by us.

(1) Excludes 14 month-to-month leases for 27,108 RSF.

The following tables present information by market with respect to our lease expirations as of March 31, 2016, for the remainder of 2016 and all of 2017:

2016 Contractual Lease Expirations ABR of<br>Expiring Leases<br>(per RSF)
Leased Negotiating/<br>Anticipating Targeted for<br>Redevelopment Remaining<br>Expiring Leases Total ^(1)^
Market
Greater Boston 38,803 1,845 — 46,716 87,364 $ 42.97
San Francisco 27,015 50,400 — 15,162 92,577 26.41
New York City — — — 14,456 14,456 N/A
San Diego 46,033 14,685 — 251,119 ^(2)^ 311,837 36.14
Seattle 2,468 — — 36,288 38,756 29.56
Maryland 4,457 69,559 — 33,055 107,071 27.78
Research Triangle Park 32,008 28,494 — 41,504 102,006 26.15
Non-cluster markets — — — — — —
Asia — 35,335 — 8,632 43,967 14.26
Total 150,784 200,318 — 446,932 798,034 $ 34.42
Percentage of expiring leases 19 % 25 % — % 56 % 100 %
2017 Contractual Lease Expirations ABR of<br>Expiring Leases<br>(per RSF)
Leased Negotiating/<br>Anticipating Targeted for<br>Redevelopment Remaining<br>Expiring Leases Total
Market
Greater Boston — 11,825 — 337,965 349,790 $ 38.67
San Francisco — 53,980 — 128,488 182,468 35.58
New York City — — — 5,418 5,418 N/A
San Diego — — — 249,187 249,187 30.59
Seattle 20,133 — — 47,326 67,459 45.28
Maryland — — — 101,228 101,228 20.36
Research Triangle Park 3,566 109,664 — 111,233 224,463 14.04
Non-cluster markets — — — 43,045 43,045 20.33
Asia 39,676 56,800 — 24,677 121,153 14.52
Total 63,375 232,269 — 1,048,567 1,344,211 $ 28.96
Percentage of expiring leases 5 % 17 % — % 78 % 100 %

Leasing expirations include 100% of the RSF for properties managed by us.

(1) Excludes 14 month-to-month leases for 27,108 RSF.
(2) 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.
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Cash Flows from High-Quality, Diversified, and Innovative Tenants
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Top 20 Tenants ^(1)^
ABR from Investment-Grade Tenants Solid Lease Duration
81% 8.2 Years
All Tenants
Total ABR from Investment-Grade Tenants
52%
Diverse Tenant Base by ABR
(1) Represents 48.6% of total ABR.
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(2) Office and tech office space compose 2.3% and 0.7% of total ABR, respectively.
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High-Quality Cash Flows from Class A Assets in AAA Locations
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Focus in Key Locations
Class A Assets <br>in AAA Locations
75%
of ARE’s Total ABR
% of ARE’s Total ABR
Solid Demand for Class A Assets<br><br>in AAA Locations Drives Solid Occupancy
Current Occupancy of Operating Properties Across Key Locations ^(2)^
Solid Historical<br><br>Occupancy ^(1)^
95%
Over 10 Years
(1) Average occupancy of operating properties in North America as of December 31 for the last 10 years, and the period ended March 31, 2016.
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(2) As of March 31, 2016.
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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 March 31, 2016, the total RSF and ABR of our properties by markets (dollars in thousands, except per RSF amounts):

RSF Number of Properties ABR
Market Operating Development Redevelopment Total % of Total Total % of Total Per RSF
Greater Boston 4,462,540 1,113,392 59,783 5,635,715 28 % 42 $ 223,394 36 % $ 51.28
San Francisco 2,786,476 872,980 — 3,659,456 18 29 123,521 20 44.33
New York City 665,079 62,595 — 727,674 4 2 56,539 9 85.30
San Diego 2,858,511 590,887 515,362 3,964,760 20 50 94,997 15 35.17
Seattle 746,260 287,806 — 1,034,066 5 11 33,066 5 44.68
Maryland 2,085,196 — — 2,085,196 10 28 50,273 8 25.14
Research Triangle Park 1,043,211 — — 1,043,211 5 15 22,875 4 22.24
Canada 322,967 — — 322,967 2 4 7,138 1 22.25
Non-cluster markets 268,689 — — 268,689 1 6 6,233 1 26.32
Properties held for sale 161,690 — — 161,690 1 3 2,153 — N/A
North America 15,400,619 2,927,660 575,145 18,903,424 94 190 620,189 99 41.67
Asia 1,200,683 — — 1,200,683 6 8 7,485 1 8.88
Total 16,601,302 2,927,660 575,145 20,104,107 100 % 198 $ 627,674 100 % $ 39.63

RSF, number of properties, and ABR amounts include 100% of the properties managed by us.

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 3/31/16 12/31/15 3/31/15 3/31/16 12/31/15 3/31/15
Greater Boston 97.6 % 96.5 % 98.9 % 96.3 % 95.2 % 96.4 %
San Francisco 100.0 100.0 98.5 100.0 100.0 98.5
New York City 99.7 99.7 99.5 99.7 99.7 99.5
San Diego 94.5 96.4 94.9 80.1 82.3 93.9
Seattle 99.2 99.6 96.2 99.2 99.6 96.2
Maryland 95.9 96.0 93.2 95.9 96.0 93.2
Research Triangle Park 98.6 97.6 98.8 98.6 97.6 98.8
Subtotal 97.5 97.4 97.0 93.8 93.8 96.1
Canada 99.3 99.3 99.0 99.3 99.3 99.0
Non-cluster markets 88.1 80.0 68.0 88.1 80.0 68.0
North America 97.3 % 97.2 % 96.8 % 93.8 % 93.7 % 95.9 %

Occupancy includes 100% of properties managed by us.

Tenants

81% of ABR from Investment-Grade Tenants ^(1)^

(as a percentage of ABR from top 20 tenants)

Our properties are leased to a high-quality and diverse group of tenants, with no individual tenant accounting for more than 4.8% of our ABR. The following table sets forth information regarding leases with our 20 largest tenants based upon ABR as of March 31, 2016 (dollars in thousands):

Remaining Lease Term in Years^(2)^ Aggregate RSF ABR Percentage of Aggregate ABR
Investment-Grade Ratings
Tenant Fitch Moody’s S&P
1 ARIAD Pharmaceuticals, Inc. ^(3)^ 14.0 386,111 ^(3)^ $ 29,994 4.8% — — —
2 Novartis AG 1.9 564,873 ^(4)^ 29,302 4.7 AA Aa3 AA-
3 Illumina, Inc. 13.9 595,886 25,452 4.1 — — BBB
4 New York University 14.3 209,224 20,354 3.2 — Aa3 AA-
5 Eli Lilly and Company 7.1 287,527 19,353 3.1 A A2 AA-
6 Amgen Inc. 7.1 473,369 17,456 2.8 BBB Baa1 A
7 Roche 4.5 345,786 16,517 2.6 AA A1 AA
8 Dana-Farber Cancer Institute, Inc. 14.3 203,090 15,145 2.4 — A1 —
9 Celgene Corporation 5.9 373,797 15,035 2.4 — Baa2 BBB+
10 United States Government 9.1 263,147 14,772 2.4 AAA Aaa AA+
11 FibroGen, Inc. 7.6 234,249 14,198 2.3 — — —
12 Biogen Inc. 12.5 305,212 13,278 2.1 — Baa1 A-
13 Massachusetts Institute of Technology 4.4 233,620 12,409 2.0 — Aaa AAA
14 GlaxoSmithKline plc 3.4 296,604 11,098 1.8 A+ A2 A+
15 Bristol-Myers Squibb Company 2.9 251,316 10,742 1.7 A- A2 A+
16 The Regents of the University of California 7.5 230,633 10,511 1.7 AA Aa2 AA
17 Sanofi 5.4 179,697 8,042 1.3 AA- A1 AA
18 Alnylam Pharmaceuticals, Inc. 5.6 129,424 7,313 1.2 — — —
19 Sumitomo Dainippon Pharma Co., Ltd. 7.0 106,232 6,533 1.0 — — —
20 Pfizer Inc. 3.6 128,348 6,396 1.0 A+ A1 AA
Total/weighted-average 8.2 5,798,145 $ 303,900 48.6%

ABR and RSF amounts include 100% of the properties managed by us.

(1) Represents ABR from investment-grade rated tenants as a percentage of ABR from top 20 tenants.
(2) Based on percentage of aggregate ABR in effect as of March 31, 2016.
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(3) IBM Watson Health, a digital health venture of IBM, currently subleases 163,186 RSF at 75 Binney Street with an initial lease term of 10 years. IBM holds investment-grade ratings of A+ (Fitch), Aa3 (Moody’s), and AA- (S&P).
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(4) As of March 31, 2016, number of leases, RSF, and ABR consisted of the following (dollars in thousands):
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Number of leases RSF ABR
--- --- --- --- ---
Cambridge, MA 9 425,020 $ 26,266
San Diego, CA 1 46,033 1,434
India 3 93,820 1,602
13 564,873 $ 29,302

Value-creation projects and external growth

Key real estate metrics as of March 31, 2016

Incremental Annual NOI by Year of Delivery from
Development and Redevelopment Projects^(1)^
TOTAL 2016 2017 & 2018
$ 195 M = $ 75 M + $ 120 M
to to to
$ 210 M $ 80 M $ 130 M
RSF 1.5M 2.0M
PERCENTAGE LEASED 90% 72%
INITIAL CASH YIELD 7.1%
(1) Represents incremental annual NOI upon stabilization of our development and redevelopment projects, including our share of real estate joint venture development projects. Excludes NOI related to spaces delivered and in service prior to March 31, 2016.
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Key real estate metrics as of March 31, 2016 (continued)

2016 Disciplined Allocation of Capital^(1)^ 16% of Gross Investments in Real Estate in North America Value-Creation Pipeline
Pre-Leased^(2)^ Percentage of Ground-Up Developments Since January 1, 2009 Ground-Up Developments Commenced & Delivered Since January 1, 2009
Single-Tenant<br><br>100%<br>Pre-Leased<br><br>2.6M RSF Multi-Tenant<br><br>38%<br>Pre-Leased<br><br>2.5M RSF Average <br>Initial Stabilized Yield<br><br><br>7.9% Average <br>Initial Stabilized Yield <br>(Cash Basis)<br><br>7.6%
(1) Includes projected construction and acquisitions for the year ending December 31, 2016.
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(2) Represents average pre-leased percentage at the time development commenced.
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Sustainability

(1)    Upon completion of 20 in-process LEED^®^^^certification projects.

(2)    Kilowatt hour saving reflects our property at Alexandria Center^®^ for Life Science at Campus Pointe. Source: Conversion from the Environmental Protection Agency clean energy website.

Investments in real estate

Our investments in real estate consisted of the following as of March 31, 2016 (dollars in thousands, except per square foot amounts):

Investments in Real Estate Square Feet
Consolidated Noncontrolling Share of Consolidated Real Estate Joint Ventures ARE Share of Unconsolidated Real Estate<br><br>Joint Ventures^^ Total ARE Share Unconsolidated Real Estate Joint Ventures<br><br>at 100%
Amount % Consolidated Total Per SF ^(1)^
Rental properties – North America $ 7,559,726 $ (322,442 ) $ 71,092 $ 7,308,376 84 % 15,138,252 262,367 15,400,619 $ 506
Development and redevelopment projects:
Projects to be delivered by 4Q16 617,952 — 35,832 653,784 8 1,314,545 151,432 1,465,977 504
Projects to be delivered by 2017 and 2018 488,186 (223 ) 67,162 555,125 6 1,613,848 422,980 2,036,828 302
Development and redevelopment projects 1,106,138 (223 ) 102,994 1,208,909 14 2,928,393 574,412 3,502,805 387
Rental properties and development/redevelopment projects 8,665,864 (322,665 ) 174,086 8,517,285 18,066,645 836,779 18,903,424 484
Future value-creation projects – North America 234,142 (12,275 ) — 221,867 2 5,606,435 — 5,606,435 42
Value-creation pipeline – North America 1,340,280 (12,498 ) 102,994 1,430,776 16 8,534,828 574,412 9,109,240 174
Gross investments in real estate – North America 8,900,006 (334,940 ) 174,086 8,739,152 100 % 23,673,080 836,779 24,509,859 382
Asia:
Rental properties 163,386 (1,441 ) — 161,945 1,200,683 — 1,200,683 $ 136
Land parcels 54,666 — — 54,666
Gross investments in real estate – Asia 218,052 (1,441 ) — 216,611 ^(2)^
Gross investments in real estate 9,118,058 (336,381 ) 174,086 $ 8,955,763
Less: accumulated depreciation – North America (1,358,820 ) 23,033 (2,515 )
Less: accumulated depreciation – Asia (17,772 ) 172 —
Investments in real estate $ 7,741,466 $ (313,176 ) $ 171,571

Square foot amounts include 100% of properties managed by us.

(1) The per square foot amounts represent our investment in our real estate, including our partners’ share of consolidated and unconsolidated real estate joint ventures, divided by 100% of the rentable or developable square feet of the respective properties.
(2) In late April 2016, we recognized an aggregate impairment charge of $153.0 million. Refer to Note 14 –“Assets Classified as Held for Sale” to our unaudited consolidated financial statements under Item 1 of this report for net assets of $104.4 million after impairment charge recognized in April 2016 related to our real estate investments in Asia.
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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 world-class collaborative science and technology campuses in AAA urban innovation clusters. These projects are focused on providing high-quality, generic, and reusable space to meet the real estate requirements of, and are reusable by, a wide range of tenants. A significant number of our active development and redevelopment projects are highly leased and expected to be substantially delivered in the near future, including 1.5 million RSF by the end of 2016. Upon completion, each value-creation project is expected to generate a significant increase in rental income, NOI, and cash flows, including $75 million to $80 million of incremental annual NOI from projects placed into service by the end of 2016. Our development and redevelopment projects are generally in locations that are highly desirable to high-quality 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 and tech office space. We generally will not commence new development projects for aboveground construction of Class A office/laboratory and 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. As of March 31, 2016, we had development and redevelopment projects targeted to be placed into service by the end of 2016, which were 90% pre-leased.

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 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.

Highly leased projects to be placed into service in 2016

The following table sets forth our consolidated and unconsolidated development and redevelopment projects to be placed into service in 2016, as of March 31, 2016 (dollars in thousands):

Dev/ Redev Project RSF Percentage Total Leased/Negotiating Project Start Occupancy
Property/Market/Submarket In Service CIP Total Leased Negotiating RSF % Initial Stabilized
430 East 29th Street/New York City/Manhattan Dev 356,044 62,595 418,639 90 % 10 % 418,639 100 % 4Q12 4Q13 2Q16
5200 Illumina Way, Bldg 6/San Diego/University Town Center Dev — 295,609 295,609 100 % — % 295,609 100 % 3Q14 3Q16 3Q16
50/60 Binney Street/Greater Boston/Cambridge Dev — 530,477 530,477 98 % — % 520,385 98 % 1Q15 4Q16 4Q16
360 Longwood Avenue/Greater Boston/Longwood Medical Area Dev 262,367 151,432 413,799 63 % 13 % 313,350 76 % 2Q12 3Q14 4Q16
4796 Executive Drive/San Diego/University Town Center Dev — 61,755 61,755 100 % — % 61,755 100 % 4Q15 4Q16 4Q16
10290 Campus Point Drive/San Diego/University Town Center Redev — 304,326 304,326 100 % — % 304,326 100 % 3Q15 4Q16 4Q16
11 Hurley Street/Greater Boston/Cambridge Redev — 59,783 59,783 100 % — % 59,783 100 % 3Q15 4Q16 4Q16
Total/weighted average 618,411 1,465,977 2,084,388 90 % 5 % 1,973,847 95 %
Our Share of Investment Unlevered Yields
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Property/Market/Submarket Our Ownership Interest Cost to Complete Average Cash Initial Stabilized Cash Basis Initial Stabilized
In Service CIP Construction<br><br>Financing Other Total at Completion
430 East 29th Street/New York City/Manhattan 100% $ 382,277 $ 72,775 $ — $ 8,193 $ 463,245 7.1% 6.6% 6.5%
5200 Illumina Way, Bldg 6/San Diego/University Town Center 100% — 55,225 — 14,675 69,900 8.6% 7.0% 8.4%
50/60 Binney Street/Greater Boston/Cambridge 100% — 327,786 172,214 ^(1)^ — 500,000 8.1% 7.3% 7.4%
360 Longwood Avenue/Greater Boston/Longwood Medical Area 27.5% 60,305 35,832 9,103 ^(2)^ 3,725 108,965 ^(3)^ 8.2% ^(3)^ 7.3% ^(3)^ 7.8% ^(3)^
4796 Executive Drive/San Diego/University Town Center 100% — 15,978 — 26,222 42,200 7.7% 6.8% 7.1%
10290 Campus Point Drive/San Diego/University Town Center 100% — 133,492 — 107,508 241,000 7.6% 6.8% 7.0%
11 Hurley Street/Greater Boston/Cambridge 100% — 12,696 — 28,304 41,000 8.8% 7.9% 8.6%
Total $ 442,582 $ 653,784 $ 181,317 $ 188,627 $ 1,466,310
(1) Refer to Note 8 – “Secured and Unsecured Senior Debt” under Item 1 for additional information related to our secured construction loans.
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(2) Refer to the “Unconsolidated Real Estate Joint Ventures” section under Item 2 for additional information related to our secured construction loan held by our unconsolidated real estate joint venture.
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(3) Our projected cost at completion and unlevered yields are based upon our share of the investment in real estate, including costs incurred directly by us outside of the real estate joint venture. Development management fees earned from these development projects have been excluded from our estimate of unlevered yields. The RSF related to the project in the table above represents 100% of the project RSF.
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Highly leased projects to be placed into service in 2016 (continued)

430 East 29th Street 5200 Illumina Way, Building 6 50 Binney Street 60 Binney Street
New York City/Manhattan San Diego/University Town Center Greater Boston/Cambridge Greater Boston/Cambridge
62,595 RSF 295,609 RSF 274,734 RSF 255,743 RSF
Roche/New York University/Others Illumina, Inc. Sanofi Genzyme bluebird bio, Inc.
360 Longwood Avenue 4796 Executive Drive 10290 Campus Point Drive 11 Hurley Street
Greater Boston/Longwood Medical Area San Diego/University Town Center San Diego/University Town Center Greater Boston/Cambridge
151,432 RSF 61,755 RSF 304,326 RSF 59,783 RSF
Dana-Farber Cancer Institute, Inc.<br>The Children’s Hospital Corporation Otonomy, Inc. Eli Lilly and Company Editas Medicine, Inc.

Projects to be placed into service in 2017 and 2018

The following table sets forth our consolidated and unconsolidated development and redevelopment projects to be placed into service in 2017 and 2018, as of March 31, 2016 (dollars in thousands):

Dev/ Redev Project RSF Percentage Total Leased/Negotiating Project Start Occupancy
Property/Market/Submarket In Service CIP Total Leased Negotiating RSF % Initial Stabilized
100 Binney Street/Greater Boston/Cambridge Dev — 431,483 431,483 48 % 26 % 320,683 74 % 3Q15 4Q17 2017
510 Townsend Street/San Francisco/Mission Bay/SoMa Dev — 300,000 300,000 100 % — % 300,000 100 % 3Q15 3Q17 2017
505 Brannan Street, Phase I/San Francisco/Mission Bay/SoMa Dev — 150,000 150,000 100 % — % 150,000 100 % 1Q16 2H17 2017
1455/1515 Third Street/San Francisco/Mission Bay/SoMa Dev — 422,980 422,980 100 % — % 422,980 100 % 3Q14 2Q/3Q18 2018
400 Dexter Avenue North/Seattle/Lake Union Dev — 287,806 287,806 56 % 34 % 259,594 90 % ^(1)^ 2Q15 1Q17 2018
ARE Spectrum/San Diego/Torrey Pines ^(2)^ Dev 102,938 233,523 336,461 91 % — % 305,525 91 % 2Q16 2H17 2017
9625 Towne Centre Drive/San Diego/University Town Center Redev — 162,156 162,156 — % — % — — % 3Q15 1Q17 2017
10151 Barnes Canyon Road/San Diego/Sorrento Mesa Redev — 48,880 48,880 — % 100 % 48,880 100 % 4Q15 1H17 2017
Total/weighted average 102,938 2,036,828 2,139,766 72 % 12 % 1,807,662 84 % Our Share of Investment Unlevered Yields
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Property/Market/Submarket Our Ownership Interest Cost to Complete Average Cash Initial Stabilized Cash Basis Initial Stabilized
In Service CIP Construction Financing Other Total at Completion
100 Binney Street/Greater Boston/Cambridge 100% $ — $ 188,869 $ 304,281 ^(3)^ $ 41,850 $ 535,000 7.9% 7.0% 7.7%
510 Townsend Street/San Francisco/Mission Bay/SoMa 100% — 77,753 — 160,247 238,000 7.9% 7.0% 7.2%
505 Brannan Street, Phase I/San Francisco/Mission Bay/SoMa 99.2% — 29,528 — 111,472 141,000 8.6% 7.0% 8.2%
1455/1515 Third Street/San Francisco/Mission Bay/SoMa 51.0% 10,787 ^(4)^ 67,162 ^(4)^ — — TBD ^(5)^ ^(5)^ ^(5)^
400 Dexter Avenue North/Seattle/Lake Union 100% — 68,494 — 163,506 232,000 7.3% 6.9% 7.2%
ARE Spectrum/San Diego/Torrey Pines ^(2)^ 100% 54,132 92,902 — 130,966 278,000 6.9% 6.1% 6.4%
9625 Towne Centre Drive/San Diego/University Town Center 100% — 23,577 — — TBD ^(5)^ ^(5)^ ^(5)^
10151 Barnes Canyon Road/San Diego/Sorrento Mesa 100% — 6,840 — — TBD ^(5)^ ^(5)^ ^(5)^
Total/weighted average $ 64,919 $ 555,125 $ 304,281 $ TBD $ TBD
(1) Remaining 10% RSF includes 5% of retail space expected to be leased closer to initial occupancy.
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(2) As of March 31, 2016, the ARE Spectrum project was expanded to include 3215 Merryfield Row, an additional building aggregating 170,523 RSF. We expect to commence construction on the 3215 Merryfield Row building during the second quarter of 2016. The building was leased 100% to Vertex Pharmaceuticals Incorporated, with an estimated initial occupancy date in the second half of 2017.
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(3) Funding for this project will be provided primarily by a secured construction loan that we closed in April 2016 with commitments available for borrowing of $304.3 million at a rate of LIBOR+200bps. We have two, one-year options to extend the stated maturity date to April 20, 2021, subject to certain conditions.
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(4) The in-service and CIP costs are based on our share of the investment in real estate, including costs incurred directly by us outside of the real estate joint venture. The RSF related to the project in the table above represents 100% of the project RSF.
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(5) The design and budget of these projects are in process, and the estimated project costs with related yields will be disclosed in the future.
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Projects to be placed into service in 2017 and 2018 (continued)

100 Binney Street 510 Townsend Street 505 Brannan Street, Phase I 1455/1515 Third Street
Greater Boston/Cambridge San Francisco/Mission Bay/SoMa San Francisco/Mission Bay/SoMa San Francisco/Mission Bay/SoMa
431,483 RSF 300,000 RSF 150,000 RSF 422,980 RSF
Bristol-Myers Squibb Company Stripe, Inc. Pinterest, Inc. Uber Technologies, Inc.
400 Dexter Avenue North ARE Spectrum 9625 Towne Centre Drive 10151 Barnes Canyon Road
Seattle/Lake Union San Diego/Torrey Pines San Diego/University Town Center San Diego/Sorrento Mesa
287,806 RSF 233,523 RSF 162,156 RSF 48,880 RSF
Juno Therapeutics, Inc. Celgene Corporation<br>The Medicines Company<br>Vertex Pharmaceuticals Incorporated Marketing Negotiating

Future value-creation projects in North America

The following table summarizes the square footage of our future value-creation projects in North America as of March 31, 2016 (dollars in thousands, except per SF amounts):

Property/Market/Submarket Our Ownership Interest Book Value Square Feet Per SF ^(1)^
Alexandria Technology Square^®^/Greater Boston/Cambridge 100% $ 7,787 100,000 $ 78
505 Brannan Street, Phase II/San Francisco/Mission Bay/SoMa 99.2% 12,695 165,000 78
Grand Avenue/San Francisco/South San Francisco ^(2)^ Various ^(3)^ 33,131 397,132 114
560 Eccles Avenue/San Francisco/South San Francisco ^(4)^ 100% 17,655 144,000 123
East 29th Street/New York City/Manhattan 100% — 420,000 —
5200 Illumina Way/San Diego/University Town Center 100% 10,407 386,044 27
10300 Campus Point Drive/San Diego/University Town Center 100% 7,945 292,387 27
1150/1165/1166 Eastlake Avenue East/Seattle/Lake Union 100% 34,715 366,000 95
1818 Fairview Avenue East/Seattle/Lake Union 100% 8,791 188,490 47
6 Davis Drive/Research Triangle Park/Research Triangle Park 100% 16,419 1,000,000 16
Other:
Greater Boston 100% 9,281 395,599 23
San Francisco 100% — 95,620 —
San Diego 100% 24,862 193,895 128
Maryland 100% 21,482 763,721 28
Research Triangle Park 100% 4,149 76,262 54
Non-cluster Markets 100% 12,548 622,285 20
Future value-creation projects $ 221,867 5,606,435 $ 42
(1) The per square foot amounts represent our investment in our real estate, including our partners’ share of consolidated real estate joint ventures, divided by 100% of developable square feet of the respective properties.
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(2) In March 2016, Verily, Alphabet Inc.’s life science subsidiary, entered into a sublease for 407,369 RSF at 249/259/269 East Grand Avenue with Amgen Inc., with potential expansion space on the two additional land parcels, aggregating 397,132 SF, located adjacent to/surrounding the recently developed campus in South San Francisco.
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(3) Includes a redeemable noncontrolling interest, aggregating 37% ownership in one of our consolidated real estate joint ventures, at our 213 East Grand Avenue property aggregating 275,500 SF.
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(4) Represents an additional parcel located near our 341/343 Oyster Point Boulevard properties and within walking distance of Roche’s campus in South San Francisco.
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Future value-creation projects in North America (continued)

Future value-creation projects in North America (continued)

Summary of capital expenditures

The following table summarizes the total projected construction spending for the nine months, and year ending December 31, 2016, which includes interest, property taxes, insurance, payroll, and other indirect project costs (in thousands):

Projected Construction Spending Year Ending <br>December 31, 2016
Development and redevelopment projects ^(1)^ $ 589,000
Other building improvement projects ^(2)^ 71,000
Total construction spending for the nine months ending December 31, 2016 $ 660,000
Actual construction spending for the three months ended March 31, 2016 189,147
Guidance range for the year ending December 31, 2016 $ 800,000 – 900,000

(1)    Includes estimated contributions to fund our share of construction in our unconsolidated real estate joint venture development projects.

(2) Includes generic laboratory infrastructure/building improvement projects and non-revenue-enhancing capital expenditures and tenant improvements.

Our construction spending for the three months ended March 31, 2016 consisted of the following (in thousands):

Historical Construction Spending Three Months Ended March 31, 2016
Total construction costs ^(1)^ $ 189,147
Increase in accrued construction (29,197 )
Total construction spending (cash basis) $ 159,950
Additions to real estate $ 159,501
Investments in unconsolidated real estate joint ventures 449
Total construction spending (cash basis) $ 159,950
(1) Includes revenue-enhancing projects and non-revenue enhancing capital expenditures shown in the table below.
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The table below shows 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 tenants, revenue-enhancing, or related to properties that have undergone redevelopment (dollars in thousands, except per RSF amounts):

Non-Revenue-Enhancing Capital Expenditures, Tenant Improvements, and Leasing Costs ^(1)^ Three Months Ended March 31, 2016 Five Year Average<br><br>per RSF ^(2)^
Amount RSF Per RSF
Non-revenue-enhancing capital expenditures $ 2,318 16,845,444 $ 0.14 $ 0.41
Tenant improvements and leasing costs:
Re-tenanted space $ 2,093 108,989 $ 19.20 $ 15.54
Renewal space 382 109,353 3.49 6.82
Total tenant improvements and leasing costs/weighted average $ 2,475 218,342 $ 11.34 $ 9.22
(1) Excludes amounts that are recoverable from tenants, revenue-enhancing, or related to parties that have undergone redevelopment.
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(2) Represents the average of 2012 through 2015 and the three months ended March 31, 2016, annualized.
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We expect our capital expenditures, tenant improvements, and leasing costs (excluding capital expenditures and tenant improvements that are recoverable from tenants, revenue-enhancing, or related to properties that undergo redevelopment) on a per RSF basis for the remainder of 2016 to be approximately similar to the amounts shown in the preceding table.

Value-creation projects and external growth

During the three months ended March 31, 2016, we commenced a 150,000 RSF development project at 505 Brannan Street in our Mission Bay/SoMa submarket, which is 100% leased to Pinterest, Inc.

We expect to commence development of an additional building at 3215 Merryfield Row aggregating 170,523 RSF at our ARE Spectrum project in the second quarter of 2016. The building has been leased to Vertex Pharmaceuticals, Inc., with an initial occupancy date in the second half of 2017.

Real estate asset sales

Our real estate assets held for sale as of March 31, 2016 consisted of the following (dollars in thousands):

Property/Market/Submarket RSF/Acres NOI ^(1)^ Cash<br><br>NOI ^(1)^ Actual/Estimated <br>Sales Price
Assets held for sale in North America:
16020 Industrial Drive/Maryland/Gaithersburg 71,000 RSF $ 1,022 $ 896 ^(2)^ $ 6,400
306 Belmont Street and 350 Plantation Street/Greater Boston/Route 495/Worcester 90,690 RSF $ 1,557 $ 1,347 ^(3)^ 17,550
Assets held for sale in North America 23,950
Asia assets pending disposition: ^(4)^
Operating properties 1,200,683 RSF ^(5)^ ^(5)^ 113,000
Land parcels 196 acres ^(5)^ ^(5)^
$ 136,950
(1) Cash NOI excludes straight-line rent and amortization of acquired below-market leases. NOI amounts represent the annualized amounts for three months ended March 31, 2016.
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(2) Property consists of an R&D/warehouse building acquired in 2005 with minimal capital improvements since acquisition. Buyer intends to make considerable investments in the building, including demolition of some of the existing space and re-purposing of its use.
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(3) Non-core properties located outside of our urban innovation clusters. These properties are Class B office buildings leased to non-credit tenants and represent our last investment in Worcester. The internal rate of return over our hold period, including the expected disposition of the asset, is expected to be approximately 8.9%.
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(4) In March 2016, we recognized an impairment charge of $29.0 million for two land parcels in India that met the criteria for classification as held for sale in March 2016. As of March 31, 2016, we only had one binding sale agreement related to one land parcel. This land parcel was sold on May 2, 2016, at a sales price of $7.5 million with no gain or loss. On April 22, 2016, our Board of Directors approved the monetization of our real estate investments in Asia in order to invest capital into our highly leased value-creation pipeline. As a result of this decision, we recognized an aggregate impairment charge of $153.0 million to reduce our net book value to fair value less cost to sell for all of our remaining investments in Asia. In determining the carrying amount for evaluating the real estate for impairment, we considered the cumulative foreign currency translation losses of approximately $32.0 million for our land parcels located in India, and $18.8 million for our rental properties in our India and China submarkets, that will be reclassified to net income only when realized upon sale or disposition. We believe our real estate investments in Asia will be monetized in several separate transactions over the next 12 months.
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(5) Refer to Note 14 – “Assets Classified as Held for Sale” to our unaudited consolidated financial statements under Item 1 of this report for operating and balance sheet information related to our real estate investments in Asia.
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Non-Real Estate Investments

We hold equity investments in certain publicly traded companies and in certain privately held entities and limited partnerships primarily involved in the science and technology industries. Some of our investees are also tenants.

As of March 31, 2016, our investments aggregated $316.2 million, or approximately 3.5% of our total assets, including $63.2 million of net unrealized gains from investments in publicly traded entities. The charts and table below show selected non-real estate investment statistics as of March 31, 2016 (dollars in thousands):

Public/Private Investment Mix<br>(Cost) Tenant/Non-Tenant Mix<br><br>(Cost)
Investment<br><br>Type Cost Net Unrealized Gains Total Number of Investments<br><br>190<br><br>Average Size of Investment<br><br>$1.3M
Public $ 22,237 $ 63,150 $ 85,387
Private 230,776 N/A 230,776
Total $ 253,013 $ 63,150 $ 316,163

Results of operations

Key operating metrics

Occupancy of Operating Properties<br><br>North America^(1)^ Annualized Based Rent by Market
% of ARE’s Total ABR as of March 31, 2016
Rental Rate Increases: <br>Renewed/Re-Leased Space Same Property NOI Increase Favorable Lease Structure Adjusted EBITDA Margin ^(3)^
--- --- ---
65%
Percentage of <br>triple net leases 96%
Stable cash flows
Percentage of leases <br>containing annual <br>rent escalations 95%
Increasing cash flows
Percentage of leases <br>providing for <br>the recapture of <br>capital expenditures 94%
Lower capex burden
(1) As of the end of each respective period.
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(2) Rental rate increases for the three months ended March 31, 2016 were driven by four leases that generated average increases in rental rates of 47%, and 29% on a cash basis. Refer to our “Projected Results” on page 81 for estimated rental rate growth for the year ending December 31, 2016.
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(3) Represents the three months ended March 31, 2016, annualized.
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Same Properties

As a result of changes within our total property portfolio during the comparative periods presented, including changes from assets acquired or sold, properties placed into development or redevelopment, and development and/or redevelopment properties recently placed into service, the consolidated total rental revenues, tenant recoveries, and rental operating expenses in our operating results can show significant changes from period to period. In order to supplement an evaluation of our results of operations over a given period, we analyze the operating performance for all properties, including only our pro rata share of amounts from consolidated and unconsolidated real estate joint ventures, for comparable properties, referred to as Same Properties, that were fully operating for the entirety of the comparative periods presented. These properties are analyzed separately from properties acquired subsequent to the first day in the earliest comparable period presented, properties that underwent development or redevelopment at any time during the comparative periods, and corporate entities (legal entities performing general and administrative functions), which are excluded from same property results. Additionally, rental revenues from lease termination fees, if any, are excluded from the results of the same properties.

The following table presents information regarding our Same Properties for the three months ended March 31, 2016:

Three Months Ended March 31, 2016
Percentage change in NOI over comparable period from prior year 5.3%
Percentage change in NOI (cash basis) over comparable period from prior year 6.2%
Operating margin 70%
Number of Same Properties 169
RSF 14,855,443
Occupancy – current-period average 94.6%
Occupancy – same-period prior year average 93.6%

The following table reconciles the number of Same Properties to total properties for the three months ended March 31, 2016:

Development – under construction Properties
50/60 Binney Street 2
100 Binney Street 1
510 Townsend Street 1
505 Brannan Street 1
ARE Spectrum 3
430 East 29th Street 1
5200 Illumina Way, Building 6 1
4796 Executive Drive 1
400 Dexter Avenue North 1
360 Longwood Avenue (unconsolidated real estate joint venture) 1
1455/1515 Third Street (unconsolidated real estate joint venture) 2
15
Development – placed into service after January 1, 2015 Properties
75/125 Binney Street 1
6040 George Watts Hill Drive 1
2
Redevelopment – under construction Properties
11 Hurley Street 1
10290 Campus Point Drive 1
9625 Towne Centre Drive 1
10151 Barnes Canyon Road 1
4
Redevelopment – placed into service after January 1, 2015 Properties
225 Second Avenue 1
11055/11065/11075 Roselle Street 3
4 Summary Properties
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Properties under construction:
Development 15
Redevelopment 4
Projects placed into service after<br><br>January 1, 2015:
Development 2
Redevelopment 4
Acquisitions after January 1, 2015:
640 Memorial Drive 1
Properties held for sale 3
Total properties excluded from Same Properties 29
Same Properties 169
Total properties as of March 31, 2016 198

Comparison of the three months ended March 31, 2016, to the three months ended March 31, 2015

The following table presents a comparison of the components of NOI for our Same Properties and Non-Same Properties for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, and a reconciliation of NOI to income from continuing operations, the most directly comparable financial measure (dollars in thousands):

Three Months Ended March 31,
2016 2015 Change % Change
Same Properties $ 127,023 $ 122,626 3.6 %
Non-Same Properties 31,253 20,982 10,271 49.0
Total rental 158,276 143,608 14,668 10.2
Same Properties 44,071 42,204 1,867 4.4
Non-Same Properties 8,526 6,190 2,336 37.7
Total tenant recoveries 52,597 48,394 4,203 8.7
Same Properties 11 12 (1 ) (8.3 )
Non-Same Properties 5,205 4,739 466 9.8
Total other income 5,216 4,751 465 9.8
Same Properties 171,105 164,842 6,263 3.8
Non-Same Properties 44,984 31,911 13,073 41.0
Total revenues 216,089 196,753 19,336 9.8
Same Properties 51,107 50,858 249 0.5
Non-Same Properties 14,730 10,365 4,365 42.1
Total rental operations 65,837 61,223 4,614 7.5
Same properties 119,998 113,984 6,014 5.3
Non-same properties 30,254 21,546 8,708 40.4
Consolidated net operating income 150,252 135,530 14,722 10.9
Same properties — — — —
Non-same properties (6,055 ) — (6,055 ) 100.0
Less: NOI of consolidated real estate JVs attributable to noncontrolling interest (6,055 ) — (6,055 ) 100.0
Same properties — — — —
Non-same properties 1,068 860 208 24.2
Our share of NOI from unconsolidated real estate JVs 1,068 860 208 24.2
Same properties 119,998 113,984 6,014 5.3
Non-same properties 25,267 22,406 2,861 12.8
Our share of total net operating income 145,265 136,390 8,875 6.5
Other expenses:
General and administrative 15,188 14,387 801 5.6
Interest 24,855 23,236 1,619 7.0
Depreciation and amortization 70,866 58,920 11,946 20.3
Impairment of real estate 28,980 14,510 14,470 99.7
139,889 111,053 28,836 26.0
Plus: noncontrolling interest share of NOI 6,055 — 6,055 (100.0 )
Less: our share of NOI from unconsolidated real estate JVs (1,068 ) (860 ) (208 ) 24.2
Equity in (losses) earnings of unconsolidated real estate JVs (397 ) 574 (971 ) (169.2 )
Income from continuing operations $ 9,966 $ 25,051 ) (60.2 )%
Our share of NOI – same properties $ 119,998 $ 113,984 5.3 % ^(1)^
Our share of straight-line rent revenue & amortization of acquired below-market leases (4,497 ) (5,218 ) 721 (13.8 )
Our share of NOI – same properties (cash basis) $ 115,501 $ 108,766 6.2 % ^(1)^

All values are in US Dollars.

(1) Same property NOI increased partially due to a 1.0% increase in our same property occupancy to 94.6% from 93.6%.

.

Rental revenues

Total rental revenues for the three months ended March 31, 2016, increased by $14.7 million, or 10.2%, to $158.3 million, compared to $143.6 million for the three months ended March 31, 2015. The increase was primarily due to rental revenues from our Non-Same Properties, which consisted of the following: (i) increase of $9.4 million primarily due to the placement into service subsequent to January 1, 2015, of highly leased development and redevelopment projects, respectively, aggregating 617,530 RSF, and (ii) increase of $912 thousand due to the acquisition of one operating property aggregating 225,504 RSF subsequent to January 1, 2015.

Rental revenues from our Same Properties for the three months ended March 31, 2016, increased by $4.4 million, or 3.6%, to $127.0 million, compared to $122.6 million for the three months ended March 31, 2015. The increase was primarily due to the increase in occupancy for these properties to 94.6% three months ended March 31, 2016, from 93.6% three months ended March 31, 2015.

Tenant recoveries

Tenant recoveries for the three months ended March 31, 2016, increased by $4.2 million, or 8.7%, to $52.6 million, compared to $48.4 million for the three months ended March 31, 2015. This increase is relatively consistent with the increase in our rental operating expenses of $4.6 million, or 7.5%, as discussed under “Rental Operating Expenses” below. Same Properties’ tenant recoveries increased by $1.9 million, or 4.4%, primarily due to one of our Top 20 tenants converting from a gross lease to a triple net lease and as a result of the increase in occupancy for Same Properties, as discussed above.

Other income

Other income for the three months ended March 31, 2016 and 2015, consisted of the following (in thousands):

Three Months Ended March 31,
2016 2015 Change
Management fee income $ 253 $ 554 $ (301 )
Interest and other income 854 485 369
Investment income 4,109 3,712 397
Total other income $ 5,216 $ 4,751 $ 465

Rental operating expenses

Total rental operating expenses for the three months ended March 31, 2016, increased by $4.6 million, or 7.5%, to $65.8 million, compared to $61.2 million for the three months ended March 31, 2015. Approximately $4.4 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, 2015, and operating properties acquired subsequent to January 1, 2015.

Same Properties’ rental operating expenses increased slightly during the three months ended March 31, 2016, compared to the three months ended March 31, 2015, primarily due to an increase in operating expenses from higher occupancy and higher property tax offset by lower utility costs due to a milder winter.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2016, increased by $0.8 million, or 5.6%, to $15.2 million, compared to $14.4 million for the three months ended March 31, 2015. General and administrative expenses increased primarily due to the continued growth in both the depth and breadth of our operations in multiple markets. As a percentage of total assets, our general and administrative expenses for the three months ended March 31, 2016 and 2015, on an annualized basis were consistent at 0.7% and 0.7%, respectively.

Interest expense

Interest expense for the three months ended March 31, 2016 and 2015, consisted of the following (dollars in thousands):

Three Months Ended March 31,
Component 2016 2015 Change
Secured notes payable $ 7,028 $ 7,709 $ (681 )
Unsecured senior notes payable 20,655 17,405 3,250
Unsecured senior line of credit 2,120 2,072 48
Unsecured senior bank term loans 3,827 3,341 486
Interest rate swaps 158 505 (347 )
Amortization of loan fees and other interest 3,166 3,175 (9 )
Interest incurred 36,954 34,207 2,747
Capitalized interest (12,099 ) (10,971 ) (1,128 )
Interest expense $ 24,855 $ 23,236 $ 1,619
Average debt balance outstanding ^(1)^ $ 4,066,987 $ 3,808,007 $ 258,980
Weighted-average annual interest rate ^(2)^ 3.6 % 3.6 % — %
(1) Represents the average debt principal balance outstanding during the three months ended March 31, 2016 and 2015, which excludes the effect of unamortized deferred financing costs.
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(2) Represents annualized total interest expense divided by the average debt balance outstanding in the respective periods, which excludes the effect of amortization of deferred financing costs.
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Interest expense increased by $1.6 million during the three months ended March 31, 2016, compared to the three months ended March 31, 2015, primarily as a result of a $2.7 million increase in interest incurred. The increase of $2.7 million in interest incurred was primarily due to a $259.0 million increase in the average debt balance outstanding during the three months ended March 31, 2016, over the average debt balance outstanding during the three months ended March 31, 2015. The increase in average balance outstanding is primarily due to the issuance of our $300 million offering unsecured senior notes payable at a stated interest rate of 4.30% in November 2015. The proceeds from these notes payable were used primarily to partially fund the construction of our development and redevelopment projects.

The increase in interest incurred was slightly offset by an increase of $1.1 million in capitalized interest incurred during the three months ended March 31, 2016, compared to the three months ended March 31, 2015. The increase in capitalized interest is primarily related to an increase in construction activity related to our 3.5 million RSF highly leased value-creation pipeline.

Depreciation and amortization

Depreciation and amortization for the three months ended March 31, 2016, increased by $11.9 million, or 20.3%, to $70.9 million, compared to $58.9 million for the three months ended March 31, 2015. Depreciation increased primarily due to additional depreciation from development and redevelopment projects placed into service subsequent to January 1, 2015, and one operating property acquired subsequent to January 1, 2015, as noted above.

Sales of real estate assets

For additional information, refer to the section titled “Assets Located in Asia” in Note 14 – “Assets Classified as Held for Sale” to our unaudited consolidated financial statements under Item 1 of this report.

Equity in loss of unconsolidated real estate joint ventures

Equity in loss of unconsolidated real estate joint ventures of $397 thousand for the three months ended March 31, 2016, primarily includes our 27.5% share of the operating results of our property at 360 Longwood Avenue in our Longwood Medical Area submarket of Greater Boston that was placed into service at various dates beginning in the three months ended December 31, 2014. As of March 31, 2016, we had 262,367 RSF, or 63% of this property, in service and occupied, and 151,432 RSF, or 37% of this project, under development. Refer to the section titled “Highly Leased Projects to be Placed into Service in 2016” above for further information regarding the yields expected upon stabilization of this project.

Pro rata operating information

We present our operating and balance sheet information on a pro rata basis adjusted for our share of investments in unconsolidated real estate joint ventures and the share of our consolidated real estate joint ventures owned by noncontrolling interests. We believe this non-GAAP information is useful to our investors as supplemental to disclosures of our operating performance and financial position. Refer to the “Non-GAAP Measures” section appearing elsewhere under Item 2 of this report for a definition of the pro rata basis.

Three Months Ended March 31, 2016
(In thousands) Consolidated Noncontrolling Share of Consolidated JVs Our Share of<br><br>Unconsolidated JVs Our Total Share
Total revenues $ 216,089 $ (8,190 ) $ 1,855 $ 209,754
Rental operations 65,837 (2,135 ) 787 64,489
150,252 (6,055 ) 1,068 145,265
Expenses:
General and administrative 15,188 (22 ) 36 15,202
Interest 24,855 — 686 25,541
Depreciation and amortization 70,866 (2,301 ) 743 69,308
Impairment of real estate 28,980 — — 28,980
139,889 (2,323 ) 1,465 139,031
Equity in loss from unconsolidated real estate JVs (397 ) — 397 —
Net income 9,966 (3,732 ) — 6,234
Net income attributable to noncontrolling interests (4,030 ) 3,732 — (298 ) ^(1)^
Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders 5,936 — — 5,936
Dividends on preferred stock (5,907 ) — — (5,907 )
Preferred stock redemption charge (3,046 ) — — (3,046 )
Net income attributable to unvested restricted stock awards (801 ) — — (801 )
Net loss attributable to Alexandria Real Estate Equities, Inc.’s common stockholders $ (3,818 ) $ — $ — $ (3,818 )
(1) Represents net income attributable to redeemable noncontrolling interests. These redeemable interests earn a fixed preferred return of 8.4% rather than a variable return based upon their ownership percentage of the real estate joint venture. Consequently, these interests are excluded from our pro rata calculation.
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Pro rata – balance sheet information

March 31, 2016
(In thousands) Consolidated Noncontrolling Share of Consolidated JVs Our Share of<br><br>Unconsolidated JVs Our Total Share
Investments in real estate $ 7,741,466 $ (313,176 ) $ 171,571 $ 7,599,861
Investments in unconsolidated real estate JVs 127,165 — (127,165 ) —
Cash and cash equivalents 146,197 (8,888 ) 3,318 140,627
Other assets 956,704 (19,778 ) 8,218 945,144
Total assets $ 8,971,532 $ (341,842 ) $ 55,942 $ 8,685,632
Secured notes payable $ 816,578 $ — $ 49,485 $ 866,063
Unsecured debt 3,274,921 — — 3,274,921
Other liabilities 692,742 (20,271 ) 6,457 678,928
Total liabilities 4,784,241 (20,271 ) 55,942 4,819,912
Redeemable noncontrolling interests 14,218 (14,218 ) — —
Alexandria Real Estate Equities, Inc.’s stockholders’ equity 3,865,720 — — 3,865,720
Noncontrolling interests 307,353 (307,353 ) — —
Total equity 4,173,073 (307,353 ) — 3,865,720
Total liabilities and equity $ 8,971,532 $ (341,842 ) $ 55,942 $ 8,685,632

Consolidated real estate joint ventures

In December 2015, we sold partial interests for the aggregate sales price of approximately $453.1 million in the following Class A properties in three separate transactions to a high-quality institutional investor: (i) 49.9% interest in 1500 Owens Street in our Mission Bay/SoMa submarket, and (ii) 70% interest in 225 Binney Street in our Cambridge submarket, (iii) 40% interest in 409/499 Illinois Street in our Mission Bay/SoMa submarket. Refer to Note 3 – “Investments in Real Estate” and Note 4 – “Investments in Unconsolidated Real Estate Joint Ventures” to our unaudited consolidated financial statements in this report for further discussion of our existing real estate joint ventures.

The following tables set forth pro rata information related to our consolidated real estate joint ventures as of March 31, 2016 (dollars in thousands):

Three Months Ended March 31, 2016
Consolidated Real Estate Joint Ventures at 100%
225 Binney Street 1500 Owens Street 409/499 Illinois Street Various Total
Total revenues $ 3,937 $ 3,047 $ 9,670 $ 730 $ 17,384
Rental operations 615 985 2,920 580 5,100
3,322 2,062 6,750 150 12,284
Expenses:
General and administrative — 1 7 215 223
Interest — — — — —
Depreciation and amortization 976 729 3,054 362 5,121
Net income (loss) $ 2,346 $ 1,332 $ 3,689 $ (427 ) $ 6,940
Noncontrolling Interests Share of Amounts Above^(1)^
225 Binney Street 1500 Owens Street 409/499 Illinois Street Total
70% 49.9% 40% Various ^(2)^
Total revenues $ 2,756 $ 1,521 $ 3,868 $ 45 $ 8,190
Rental operations 430 492 1,168 45 2,135
2,326 1,029 2,700 — 6,055
Expenses:
General and administrative — — 2 20 22
Interest — — — — —
Depreciation and amortization 684 364 1,222 31 2,301
Net income (loss) $ 1,642 $ 665 $ 1,476 $ (51 ) $ 3,732
(1) Represents our partners’ share of operating results from consolidated real estate joint ventures.
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(2) Excludes net income attributable to redeemable noncontrolling interests, aggregating $298 thousand. These redeemable interests earn a fixed preferred return of 8.4% rather than a variable return based upon their ownership percentage of the real estate joint venture. Consequently, these interests are excluded from our pro rata calculation.
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March 31, 2016
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Consolidated Real Estate Joint Ventures at 100%
225 Binney Street 1500 Owens Street 409/499 Illinois Street Various Total
Investments in real estate $ 162,484 $ 82,121 $ 360,224 $ 120,742 $ 725,571
Cash and cash equivalents 4,956 3,077 9,234 4,286 21,553
Other assets 6,968 6,376 23,820 10,153 47,317
Total assets $ 174,408 $ 91,574 $ 393,278 $ 135,181 $ 794,441
Secured notes payable $ — $ — $ — $ — $ —
Other liabilities 3,872 11,288 29,311 10,395 54,866
Total liabilities 3,872 11,288 29,311 10,395 54,866
Redeemable noncontrolling interests — — — 14,218 ^(1)^ 14,218
Total equity 170,536 80,286 363,967 110,568 725,357
Total liabilities and equity $ 174,408 $ 91,574 $ 393,278 $ 135,181 $ 794,441
Noncontrolling Interests Share of Amounts Above ^(2)^
225 Binney Street 1500 Owens Street 409/499 Illinois Street Total
70% 49.9% 40% Various
Investments in real estate $ 113,739 $ 40,979 $ 144,089 $ 14,369 $ 313,176
Cash and cash equivalents 3,469 1,536 3,693 190 8,888
Other assets 4,878 3,180 9,529 2,191 19,778
Total assets $ 122,086 $ 45,695 $ 157,311 $ 16,750 $ 341,842
Secured notes payable $ — $ — $ — $ — $ —
Other liabilities 2,711 5,632 11,724 204 20,271
Total liabilities 2,711 5,632 11,724 204 20,271
Redeemable noncontrolling interests — — — 14,218 ^(1)^ 14,218
Total equity 119,375 40,063 145,587 2,328 307,353
Total liabilities and equity $ 122,086 $ 45,695 $ 157,311 $ 16,750 $ 341,842
(1) Represents redeemable noncontrolling interests aggregating approximately 37% ownership in one of our consolidated real estate joint ventures. Excluding this entity, the remaining real estate joint venture partners have approximately 3% ownership in the various consolidated real estate joint ventures.
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(2) Represents our partners’ share of balance sheet amounts from consolidated real estate joint ventures.
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Unconsolidated real estate joint ventures

We provide the information on our share of investments in unconsolidated real estate joint ventures as we believe this information is useful for investors because it provides our share of the investments in real estate from all properties, including our share of the assets and liabilities of our unconsolidated real estate joint ventures.

360 Longwood Avenue

We are currently developing a building aggregating 413,799 RSF in our Longwood Medical Area submarket of Greater Boston. As of March 31, 2016, we had 262,367 RSF, or 63% of the project, leased and in service. The cost at completion is expected to be approximately $350.0 million. The real estate joint venture has a non-recourse, secured construction loan with commitments aggregating $213.2 million, with a maturity date of April 1, 2017, with two, one-year options to extend the stated maturity date to April 1, 2019, subject to certain conditions. The remaining cost to complete the development is expected to be funded primarily from the remaining Longwood construction loan.

The following table summarizes the Longwood construction loan as of March 31, 2016 (dollars in thousands):

Tranche Stated Rate Outstanding Balance Remaining Commitments Total
Fixed rate 5.25 % $ 173,226 $ 2,015 $ 175,241
Floating rate ^(1)^ L+3.75 % 7,198 30,761 37,959
180,424 $ 32,776 $ 213,200
Unamortized Deferred Financing Costs 470
$ 179,954
(1) Borrowings under the floating rate tranche have an interest rate floor equal to 5.25%, and are subject to an interest rate cap on LIBOR of 3.50%.
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We have a 27.5% interest in this unconsolidated real estate joint venture that we account for under the equity method of accounting. Refer to Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies” and Note 4 – “Investments in Unconsolidated Real Estate Joint Ventures” under Item 1 of this report for additional information. Our investment in this real estate joint venture was $50.1 million as of March 31, 2016.

We expect to achieve unlevered yields on our share of the gross real estate in the joint venture as follows: (i) average cash yield during the term of the initial leases of 8.2%, (ii) initial stabilized yield (cash basis) of 7.3%, and (iii) initial stabilized yield of 7.8%. 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 real estate joint venture.

1455/1515 Third Street

In September 2014, Alexandria Real Estate Equities, Inc. and Uber Technologies, Inc. (“Uber”), entered into a real estate joint venture agreement for the development of two buildings aggregating 422,980 RSF situated on two land parcels at 1455/1515 Third Street in our Mission Bay/SoMa submarket of San Francisco. The total purchase price of the two land parcels aggregating $125.0 million was funded by contributions into the real estate joint venture by Uber and us. We have a 51% interest, and Uber has a 49% interest, in this unconsolidated real estate joint venture. The project is expected to be funded by contributions from Uber and us. We are in the process of finalizing the design and construction budget with our partner, and we expect to provide the total estimated cost at completion and estimate of yields in the near future. This project is 100% leased to Uber for a 15-year term.

We account for our investment in this real estate joint venture under the equity method of accounting. Refer to Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies” and Note 4 – “Investments in Unconsolidated Real Estate Joint Ventures” under Item 1 of this annual report for additional information. Our investment in this real estate joint venture was $77.0 million as of March 31, 2016.

Unconsolidated Real Estate Joint Ventures

The following tables set forth pro rata information related to our unconsolidated real estate joint ventures as of March 31, 2016 (dollars in thousands):

Three Months Ended March 31, 2016
Unconsolidated Real Estate Joint Ventures at 100%
360 Longwood Avenue 1455/1515 Third Street Total
Total revenue $ 6,253 $ 111 $ 6,364
Rental operations 2,483 204 2,687
3,770 (93 ) 3,677
Expenses:
General and administrative 127 — 127
Interest 2,495 — 2,495
Depreciation and amortization 1,668 132 1,800
Net loss $ (520 ) $ (225 ) $ (745 )
Our Share of Amounts Above
360 Longwood Avenue 1455/1515 Third Street Total
27.5% 51%
Total revenue $ 1,799 ^(1)^ $ 56 $ 1,855
Rental operations 683 104 787
1,116 (48 ) 1,068
Expenses:
General and administrative 36 — 36
Interest 686 — 686
Depreciation and amortization 676 67 743
Net loss $ (282 ) $ (115 ) $ (397 )

(1)    Includes property management fees earned by us.

March 31, 2016
Unconsolidated Real Estate Joint Ventures at 100%
360 Longwood Avenue 1455/1515 Third Street Total
Investments in real estate $ 310,679 $ 142,994 $ 453,673
Cash and cash equivalents 7,606 2,402 10,008
Other assets 20,008 2,506 22,514
Total assets $ 338,293 $ 147,902 $ 486,195
Secured notes payable ^(1)^ $ 179,954 ^(2)^ $ — $ 179,954
Other liabilities 10,039 6,159 16,198
Total liabilities 189,993 6,159 196,152
Total equity 148,300 141,743 290,043
Total liabilities and equity $ 338,293 $ 147,902 $ 486,195
Our Share of Amounts Above ^(3)^
360 Longwood Avenue 1455/1515 Third Street Total
27.5% 51%
Investments in real estate $ 94,049 $ 77,522 $ 171,571
Cash and cash equivalents 2,093 1,225 3,318
Other assets 6,701 1,517 8,218
Total assets $ 102,843 $ 80,264 $ 183,107
Secured notes payable ^(1)^ $ 49,485 ^(2)^ $ — $ 49,485
Other liabilities 3,241 3,216 6,457
Total liabilities 52,726 3,216 55,942
Total equity 50,117 77,048 127,165
Total liabilities and equity $ 102,843 $ 80,264 $ 183,107
(1) Includes unamortized deferred financing costs.
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(2) Represents a non-recourse, secured construction loan with aggregate commitments of $213.2 million, of which $175.2 million bears interest at a fixed rate of 5.25% and $38.0 million bears interest at a floating rate of LIBOR + 3.75%, with a floor of 5.25%. Borrowings under the floating rate tranche are subject to an interest rate cap on LIBOR of 3.50%. 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.
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(3) Amounts include costs incurred directly by us outside of the real estate joint ventures.
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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, 2016, 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, 2016.

Period Recognized Total Per Share FFO per<br><br>Share – Diluted FFO per Share – Diluted,<br><br>As Adjusted
Summary of Key Changes in Guidance 1Q16 April 2016
Preferred stock redemption charge $ 3,046 $ — $ 3,046 $ 0.04 Included Excluded
Impairment charge related to real estate in Asia:
Land parcels located in India $ 28,980 $ 64,789 $ 93,769 ^(1)^ $ 1.29 Included Excluded
Rental properties $ — $ 88,179 $ 88,179 ^(1)^ $ 1.21 Excluded Excluded
(1) Refer to the section titled “Assets Located in Asia” in Note 14 – “Assets Classified as Held for Sale” to our accompanying consolidated financial statements under Item 1 of this report.
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EPS and FFO per Share Attributable to Alexandria’s Common Stockholders – Diluted ^(1)^
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Earnings per share $(1.04) to $(0.94)
Add: depreciation and amortization 4.00
Add: impairment of real estate – rental properties 1.21
Other (0.02)
FFO per share $4.15 to $4.25
Add: preferred stock redemption charge 0.04
Add: impairment of real estate – land parcels 1.29
Other (0.02)
FFO per share, as adjusted $5.46 to $5.56
(1) In 2016, we expect to amend and extend the maturity date of our $1.5 billion unsecured senior line of credit. Our guidance for the year ending December 31, 2016, excludes the potential loss on early extinguishment of debt related to the write-off of any unamortized loan fees as a result of the amendment.
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Key Assumptions<br><br>(Dollars in thousands) 2016 Guidance
--- --- --- --- ---
Low High
Occupancy percentage for operating properties in North America as of December 31, 2016 96.5% 97.1%
Lease renewals and re-leasing of space:
Rental rate increases 14.0% 17.0%
Rental rate increases (cash basis) 6.0% 9.0%
Same property performance:
NOI increase 2.0% 4.0%
NOI increase (cash basis) 3.5% 5.5%
Straight-line rent revenue $ 51,000 $ 56,000
General and administrative expenses $ 59,000 $ 64,000
Capitalization of interest $ 45,000 $ 55,000
Interest expense $ 108,000 $ 118,000
2016 Guidance
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Key Credit Metrics
Net debt to Adjusted EBITDA – fourth quarter annualized 6.5x to 6.9x
Fixed-charge coverage ratio – fourth quarter annualized 3.0x to 3.5x
Value-creation pipeline as a percentage of gross investments in real estate<br><br>as of December 31, 2016 10% to 15%
Net Debt to Adjusted EBITDA^(1)^ Liquidity
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2B
Availability under our 1.5 billion unsecured senior line of credit 1,201
Remaining construction loan commitments (2)
Available-for-sale equity securities, at fair value
Cash and cash equivalents
1,998
Fixed-Charge Coverage Ratio^(1)^ Unencumbered NOI (3)
81%

All values are in US Dollars.

(1) Quarter annualized.
(2) This amount includes remaining commitments available for borrowing aggregating $269.3 million related to existing construction loans as of March 31, 2016, and additional available construction loan commitments aggregating $304.3 million on a secured construction loan that we closed in April 2016. This excludes $7.2 million of remaining commitments that were extinguished upon the repayment in April 2016 of the outstanding $47.8 million balance of one construction loan.
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(3) For the three months ended March 31, 2016.
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As of March 31, 2016, we had CIP related to our 11 development projects and four redevelopment projects. 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 and redevelopment projects, 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.

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 will therefore be expensed as incurred. Our projection assumptions for Same Properties NOI growth, rental rate growth, straight-line rent, general and administrative expenses, capitalization of interest, and interest expense are included in the tables 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, 2015. 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 real estate 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 development and redevelopment projects and/or acquisitions;
• Maintain significant liquidity from net cash provided by operating activities, cash and cash equivalents, available-for-sale equity securities, and available borrowing capacity under our unsecured senior line of credit and available commitments under our secured construction loans;
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• Reduce the aggregate amount of outstanding unsecured bank debt under our unsecured senior line of credit and unsecured senior term loans;
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• 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;
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• Mitigate unhedged variable-rate debt exposure through the reduction of short-term and medium-term variable-rate bank debt;
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• Maintain a large unencumbered asset pool to provide financial flexibility;
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• Fund preferred stock and common stock dividends from net cash provided by operating activities;
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• Manage a disciplined level of value-creation projects as a percentage of our gross investments in real estate;
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• Maintain high levels of pre-leasing and percentage leased in value-creation projects; and
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• Decrease the ratio of net debt to Adjusted EBITDA with some variation from quarter-to-quarter and 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 (dollars in thousands).

As of March 31, 2016
Facility Balance Maturity Date ^(2)^ Applicable Margin Facility Fee
$1.5 billion unsecured senior line of credit $ 299,000 January 2019 L+1.10% 0.20%
2019 Unsecured Senior Bank Term Loan $ 597,035 ^(1)^ January 2019 L+1.20% N/A
2021 Unsecured Senior Bank Term Loan $ 347,602 ^(1)^ January 2021 L+1.10% N/A
(1) Amounts are net of unamortized deferred financing costs.
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(2) Includes any extension options that we control.
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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 (“the 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 Applicable Margin 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 on the aggregate 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 March 31, 2016, were as follows:

Covenant Ratios ^(1)^ Requirement Actual ^(2)^
Leverage Ratio Less than or equal to 60.0% 37.3%
Secured Debt Ratio Less than or equal to 45.0% 7.5%
Fixed-Charge Coverage Ratio Greater than or equal to 1.50x 3.23x
Unsecured Leverage Ratio Less than or equal to 60.0% 41.7%
Unsecured Interest Coverage Ratio Greater than or equal to 1.50x 5.91x
(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 was filed as an exhibit to our quarterly report on Form 10-Q filed with the SEC on July 29, 2015.
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(2) Actual covenants are calculated pursuant to the specific terms of our unsecured senior line of credit and unsecured senior bank term loan agreements.
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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 payable (“2.75% Unsecured Senior Notes”), 4.60% unsecured senior notes payable (“4.60% Unsecured Senior Notes”), 3.90% unsecured senior notes payable (“3.90% Unsecured Senior Notes”), 4.30% unsecured senior notes payable (“4.30% Unsecured Senior Notes”), and 4.50% unsecured senior notes payable (“4.50% Unsecured Senior Notes”) as of March 31, 2016, were as follows:

Covenant Ratios ^(1)^ Requirement Actual
Total Debt to Total Assets Less than or equal to 60% 41%
Secured Debt to Total Assets Less than or equal to 40% 8%
Consolidated EBITDA to Interest Expense Greater than or equal to 1.5x 6.2x
Unencumbered Total Asset Value to Unsecured Debt Greater than or equal to 150% 243%
(1) For definitions of the ratios, refer to the indenture at Exhibits 4.3 and 4.13 hereto and the related supplemental indentures at Exhibits 4.4, 4.7, 4.9, 4.11, and 4.14 hereto, which are each listed under Item 6 of this report.
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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.

Sources and uses of capital

We expect that our principal liquidity needs for the year ending December 31, 2016, 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.

Sources and Uses of Capital<br><br>(In thousands) 2016 Guidance
Low High Mid-point
Sources of capital for construction:
Net cash provided by operating activities after dividends $ 115,000 $ 135,000 $ 125,000
Debt funding from growth in EBITDA 260,000 240,000 250,000
Internally generated sources 375,000 375,000 375,000
Asset sales minimum target 300,000 400,000 350,000
Other capital/sales of available-for-sale equity securities 125,000 125,000 125,000
Total sources/projected construction uses $ 800,000 $ 900,000 $ 850,000
Sources of capital for acquisitions:
Debt funding from growth in EBITDA $ 45,000 $ 45,000 $ 45,000
Other capital 105,000 205,000 155,000
Total sources/projected acquisitions uses ^(1)^ $ 150,000 $ 250,000 $ 200,000
Incremental debt (included above):
Issuance of unsecured senior notes payable $ 400,000 $ 550,000 $ 475,000
Borrowings under secured construction loans 175,000 225,000 200,000
Repayments of secured notes payable (190,000 ) (290,000 ) (240,000 )
Unsecured senior line of credit/other (80,000 ) (200,000 ) (140,000 )
Incremental debt $ 305,000 $ 285,000 $ 295,000
(1) Includes acquisition price of 88 Bluxome Street in our Mission Bay/SoMa submarket of San Francisco that we expect to complete during the second half of 2016. Also includes the purchase of the remaining noncontrolling interest outstanding at Alexandria Technology Square^®^^^for $54.0 million completed in April 2016.
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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 delivery 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, 2015. 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 during 2016. For the year ending December 31, 2016, we expect that our highly pre-leased value-creation projects, along with recently delivered projects, certain future projects, and contributions from Same Properties, will provide for significant increases compared to the year ended December 31, 2015, in rental income, NOI, and cash flows. Refer to the “Cash Flows” section under Item 2 of this report for a discussion of net cash provided by operating activities for the three months ended March 31, 2016.

Real estate sales

We expect to continue the disciplined execution of select sales of non-strategic land and non-core/“core-like” operating assets. We may also consider additional sales of partial interests in core Class A assets and/or development projects. For 2016, we expect to sell real estate ranging from $300 million to $400 million. 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.

For additional information, refer to the section titled “Assets Located in Asia” in Note 14 – “Assets Classified as Held for Sale” to our unaudited consolidated financial statements under Item 1 of this report and the “Real Estate Asset Sales” subsection of the “Value-Creation Projects and External Growth” section under Item 2 of this report. The sale of non-strategic assets in our value-creation pipeline, and non-core/“core-like” operating asset provides a significant source of capital to fund our highly pre-leased value-creation development and redevelopment projects.

Liquidity

The following table presents the availability under our unsecured senior line of credit, secured construction loans, and cash and cash equivalents as of March 31, 2016 (dollars in thousands):

Description Stated<br><br>Rate Total Aggregate<br><br>Commitments Outstanding<br><br>Balance Remaining Commitments
$1.5 billion unsecured senior line of credit L+1.10% $ 1,500,000 $ 299,000 $ 1,201,000
259 East Grand Avenue/San Francisco L+1.50% 55,000 47,821 7,179
75/125 Binney Street/Greater Boston L+1.35% 250,400 188,120 62,280
50/60 Binney Street/Greater Boston L+1.50% 350,000 150,162 199,838
$ 2,155,400 $ 685,103 1,470,297
Available-for-sale equity securities, at fair value 85,387
Cash and cash equivalents 146,197
Total liquidity as of March 31, 2016 $ 1,701,881
Commitments subsequent to March 31, 2016 ^(1)^ L+2.00% 304,281 — 304,281
Construction loan repaid in April 2016 L+1.50% (55,000 ) (47,821 ) (7,179 )
$ 1,998,983
(1) In April 2016, we closed a secured construction loan with commitments available for borrowing aggregating $304.3 million for our development project at 100 Binney Street in our Cambridge submarket, which bears interest at a rate of LIBOR+200 bps.
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Refer to Note 8 – “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.

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 applicable margin 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.

Debt

We expect to fund a significant portion of our capital needs in 2016 from the issuance of unsecured senior notes payable, borrowings available under existing secured construction loans, unsecured senior line of credit, and secured construction loans.

During the three months ended March 31, 2016, we repaid three secured notes payable aggregating $57.2 million with a weighted-average effective interest rate of 4.36%.

Cash and cash equivalents

As of March 31, 2016, and December 31, 2015, we had $146.2 million and $125.1 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 March 31, 2016, and December 31, 2015 (in thousands):

March 31, 2016 December 31, 2015
Funds held in trust under the terms of certain secured notes payable $ 7,590 $ 15,906
Funds held in escrow related to construction projects and investing activities 5,040 10,040
Other restricted funds 2,255 2,926
Total $ 14,885 $ 28,872

“At the market” common stock offering program

In December 2015, we established an “at the market” common stock offering program, under which we may sell, from time to time, up to an aggregate of $450.0 million of our common stock through our various sales agents during a three-year period. During the three months ended March 31, 2016, we sold an aggregate of 293,235 shares of common stock for gross proceeds of $25.9 million, or $88.44 per share, and net proceeds of approximately $25.3 million, including commissions and other expenses of approximately $0.6 million. We used the proceeds from the sales to reduce amounts outstanding under our unsecured senior line of credit. As of March 31, 2016, the remaining amount available under our current program through the future stock sales was approximately $349.1 million.

Other sources

Under our current shelf registration statement filed with the SEC, we may offer common stock, preferred stock, debt, and other securities. These securities may be issued 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.

We also hold interests, together with certain third parties, in real estate joint ventures that are not consolidated in our financial statements. The following table presents information related to debt held by one of our unconsolidated real estate joint ventures (dollars in thousands):

Loan Collateral Total Commitments Total Outstanding Partners’ Share ARE’s<br><br>27.5% Share Maturity Date Interest Rate
360 Longwood Avenue $ 213,200 $ 180,424 $ 130,807 $ 49,617 4/1/17 ^(1)^ 5.25 % ^(2)^
Unamortized deferred financing costs 470 341 132
$ 179,954 $ 130,466 $ 49,485
(1) We have two, one-year options to extend the stated maturity date to April 1, 2019, subject to certain conditions.
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(2) Secured construction loan bears interest at LIBOR + 3.75%, with a floor of 5.25%.
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The unconsolidated real estate joint venture with Uber is 100% funded through equity contributions by Uber and us.

Uses of capital

Summary of capital expenditures

Our primary use of capital relates to the development, redevelopment, predevelopment, and construction of properties. We currently have projects in our visible growth pipeline aggregating 3.5 million RSF of office/laboratory and tech office space, including two unconsolidated real estate 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 during periods when activities necessary to prepare an asset for its intended use are in progress. 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 three months ended March 31, 2016 and 2015, of $12.1 million and $11.0 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 $3.3 million and $3.5 million for the three months ended March 31, 2016 and 2015, respectively. The increase in capitalized interest and payroll costs was primarily due to approximately 769,112 RSF related to development and redevelopment projects placed into service since January 1, 2015. 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 transferred out of CIP and 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, 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 $1.5 million for the three months ended March 31, 2016.

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 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 three months ended March 31, 2016 and 2015 were $8.1 million and $8.5 million, respectively, of which $3.3 million and $2.8 million, respectively, represented capitalized and deferred payroll costs directly related and essential to our leasing activities during such periods.

Contractual obligations and commitments

Contractual obligations as of March 31, 2016, consisted of the following (in thousands):

Payments by Period
Total 2016 2017-2018 2019-2020 Thereafter
Secured and unsecured debt ^(1) (2)^ $ 4,119,144 $ 176,248 $ 272,218 $ 1,562,233 $ 2,108,445
Estimated interest payments on fixed-rate and hedged variable-rate debt ^(3)^ 762,073 93,324 223,308 175,380 270,061
Estimated interest payments on variable-rate debt ^(4)^ 24,206 2,980 10,496 10,730 —
Ground lease obligations 611,428 10,997 25,478 22,552 552,401
Other obligations 6,637 1,166 3,322 1,810 339
Total $ 5,523,488 $ 284,715 $ 534,822 $ 1,772,705 $ 2,931,246
(1) Amounts represent principal amounts due and exclude unamortized premiums, discounts, and deferred financing costs reflected on the consolidated balance sheets.
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(2) Payment dates reflect any extension options that we control.
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(3) Estimated interest payments on our fixed-rate 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.
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(4) The interest payments on variable-rate debt are based on the interest rates in effect as of March 31, 2016.
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Secured notes payable

Secured notes payable as of March 31, 2016, consisted of 10 notes secured by 21 properties. Our secured notes payable typically require monthly payments of principal and interest and had a weighted-average interest rate of approximately 3.90% as of March 31, 2016. As of March 31, 2016, the total book values of rental properties, land held for future development, and CIP securing debt were approximately $1.6 billion. As of March 31, 2016, our secured notes payable, including unamortized discounts, were composed of approximately $359.9 million and $456.6 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 March 31, 2016, approximately 85% of our debt was fixed-rate debt or variable-rate debt subject to interest rate swap agreements. Refer to Note 9 – “Interest Rate Swap Agreements” to our unaudited consolidated financial statements appearing under Item 1 of this report for further information. The remaining 15% of our debt as of March 31, 2016, 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 March 31, 2016. Refer to additional information regarding our debt under Note 8 – “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, unsecured senior bank term loans, and variable-rate construction 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.

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 March 31, 2016, the largest aggregate notional amount in effect at any single point in time with an individual counterparty under our interest rate swap agreements was $200 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 March 31, 2016, included leases for 29 of our properties, which accounted for approximately 15% 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 $9.6 million as of March 31, 2016, our ground lease obligations have remaining lease terms ranging from approximately 40 to 100 years, including extension options.

Commitments

As of March 31, 2016, remaining aggregate costs under contract for the construction of properties undergoing development, redevelopment, and improvements under the terms of leases approximated $890.0 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 have a commitment to contribute our share of equity into one of our unconsolidated real estate joint ventures to complete the development of buildings aggregating approximately 422,980 RSF by 2018. Our share of estimated costs to complete this project is approximately $220 to $260 per square foot as of March 31, 2016. We have no obligation to provide additional funding to our other unconsolidated real estate joint venture. We are also committed to funding approximately $92.7 million for certain non-real estate investments over the next several years.

In addition, we have letters of credit and performance obligations aggregating $28.4 million primarily related to our construction management requirements in North America.

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):

Three Months Ended March 31,
2016 2015 Change
Net cash provided by operating activities $ 101,782 $ 106,841 $ (5,059 )
Net cash used in investing activities $ (171,122 ) $ (170,052 ) $ (1,070 )
Net cash provided by financing activities $ 90,780 $ 67,671 $ 23,109

Operating activities

Cash flows provided by operating activities for the three months ended March 31, 2016 and 2015, consisted of the following amounts (in thousands):

Three Months Ended March 31,
2016 2015 Change
Net cash provided by operating activities $ 101,782 $ 106,841 $ (5,059 )
Add: changes in operating assets and liabilities (583 ) (16,590 ) 16,007
Net cash provided by operating activities before changes in operating assets and liabilities $ 101,199 $ 90,251 $ 10,948

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 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 three months ended March 31, 2016, decreased to $101.8 million, compared to $106.8 million for the three months ended March 31, 2015, due to the timing of payments for operating assets and liabilities. Net cash provided by operating activities before changes in operating assets and liabilities for the three months ended March 31, 2016, increased by $10.9 million, or 12.1%, to $101.2 million, compared to $90.3 million for the three months ended March 31, 2015. This increase was primarily attributable to an increase in our total NOI from continuing operations of $8.9 million, or 6.5%, to $145.3 million for the three months ended March 31, 2016, compared to $136.4 million for the three months ended March 31, 2015, as a result of our highly leased development and redevelopment projects placed into service subsequent to January 1, 2015, partially offset by an increase in interest expense, reflecting a decrease in the amount of interest capitalized as a result of our development and redevelopment projects placed into service, as noted above.

Investing activities

Cash flows used in investing activities for the three months ended March 31, 2016 and 2015, consisted of the following (in thousands):

Three Months Ended March 31,
2016 2015 Change
Proceeds from sales of real estate $ — $ 67,616 $ (67,616 )
Additions to real estate (159,501 ) (104,632 ) (54,869 )
Purchase of real estate — (93,938 ) 93,938
Additions to investments (22,085 ) (15,118 ) (6,967 )
Sales of investments 10,913 2,345 8,568
Investments in unconsolidated real estate joint ventures (449 ) (2,539 ) 2,090
Repayment of notes receivable — 4,214 (4,214 )
Other — (28,000 ) 28,000
Net cash used in investing activities $ (171,122 ) $ (170,052 ) $ (1,070 )

Value-creation opportunities and external growth

For information on our key development and redevelopment projects for the three months ended March 31, 2016, refer to “Development, Redevelopment, and Future Value-Creation Projects” located earlier under Item 2 of this report.

Financing activities

Cash flows provided by financing activities for the three months ended March 31, 2016 and 2015, consisted of the following (in thousands):

Three Months Ended March 31,
2016 2015 Change
Borrowings from secured notes payable $ 64,922 $ 29,585 $ 35,337
Repayments of borrowings from secured notes payable (58,657 ) (7,934 ) (50,723 )
Proceeds from issuance of unsecured senior notes payable — — —
Borrowings from unsecured senior line of credit 555,000 167,000 388,000
Repayments of borrowings from unsecured senior line of credit (407,000 ) (50,000 ) (357,000 )
Repayments of borrowings from unsecured senior bank term loans — — —
Changes related to debt 154,265 138,651 15,614
Redemption of Series D cumulative convertible preferred stock (25,618 ) — (25,618 )
Proceeds from the issuance of common stock 25,278 — 25,278
Dividend payments (62,737 ) (59,542 ) (3,195 )
Contributions by noncontrolling interests — 340 (340 )
Distributions to noncontrolling interests (1,927 ) (9,846 ) 7,919
Other 7,939 (1,932 ) 9,871
Net cash provided by financing activities $ 97,200 $ 67,671 $ 29,529

Dividends

During the three months ended March 31, 2016 and 2015, we paid the following dividends (in thousands):

Three Months Ended March 31,
2016 2015 Change
Common stock dividends $ 56,490 $ 53,295 $ 3,195
Series D convertible preferred stock dividends 4,150 4,150 —
Series E preferred stock dividends 2,097 2,097 —
$ 62,737 $ 59,542 $ 3,195

The increase in dividends paid on our common stock was primarily due to an increase in the related dividends to $0.80 per common share for the three months ended March 31, 2016, from $0.74 per common share for the three months ended March 31, 2015.

Inflation

As of March 31, 2016, approximately 96% of our leases (on an RSF basis) were triple net leases, requiring 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 95% 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, 2015, for a discussion of our critical accounting policies, which include rental properties; land held for future development; CIP; 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 tenant credit quality. There were no significant changes to these policies during the three months ended March 31, 2016.

Non-GAAP measures

FFO and FFO, as adjusted (attributable to Alexandria Real Estate Equities, Inc.’s common stockholders)

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 NAREIT Board of Governors 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, 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 NAREIT Board of Governors in its April 2002 White Paper and related implementation guidance (the “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 our share of consolidated and unconsolidated partnerships and real estate 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 less/plus significant gains/losses on the sale of investments, plus losses on early extinguishment of debt, preferred stock redemption charges, impairments of non-depreciable real estate and land parcels, impairments of investments, deal costs, and the amount of such items that is allocable to our unvested restricted stock awards. Our calculations of 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. 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 our ability to make distributions.

AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders

AFFO is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute AFFO to include our share of amounts from consolidated and unconsolidated real estate joint ventures by adding to or deducting from FFO, as adjusted: (i) non-revenue-enhancing building improvements (excluding amounts recoverable from our 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 Real Estate Equities, Inc.’s common stockholders is the most comparable to GAAP financial measure 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.

The following table presents a reconciliation of net (loss) income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic, FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted, and AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, for the periods below (in thousands):

Three Months Ended March 31,
2016 2015
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic $ (3,818 ) $ 17,786
Depreciation and amortization 69,308 59,202
Impairment of real estate – rental properties — 14,510
Allocation to unvested restricted stock awards (80 ) (166 )
FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted ^(1)^ 65,410 91,332
Impairment of real estate – land parcels ^(2)^ 28,980 —
Preferred stock redemption charge 3,046 —
Allocation to unvested restricted stock awards (358 ) —
FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted 97,078 91,332
Non-revenue-enhancing capital expenditures:
Building improvements (2,318 ) (2,278 )
Tenant improvements and leasing commissions (2,475 ) (5,775 )
Straight-line rent revenue (12,492 ) (10,697 )
Straight-line rent expense on ground leases 592 363
Amortization of acquired below-market leases (974 ) (933 )
Amortization of loan fees 2,792 2,835
Amortization of debt premiums (86 ) (82 )
Stock compensation expense 5,439 3,690
Allocation to unvested restricted stock awards 106 118
AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted $ 87,662 $ 78,573
(1) Calculated in accordance with standards established by the NAREIT Board of Governors in its April 2002 White Paper and related implementation guidance.
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(2) Refer to the section titled “Assets Located in Asia” in Note 14 – “Assets Classified as Held for Sale” to our accompanying consolidated financial statements under Item 1 of this report.
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The following table presents a reconciliation of earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic, to FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted, and AFFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, for the periods below. Amounts allocable to unvested restricted stock awards are not material and are not presented separately within the table below. Per share amounts may not add due to rounding.

Three Months Ended March 31,
2016 2015
EPS attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic $ (0.05 ) $ 0.25
Depreciation and amortization^^ 0.95 0.83
Impairment of real estate – rental properties — 0.20
FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted^(1)^ 0.90 1.28
Impairment of real estate – land parcels 0.40 —
Preferred stock redemption charge 0.04 —
FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted 1.34 1.28
Non-revenue-enhancing capital expenditures:
Building improvements (0.03 ) (0.03 )
Tenant improvements and leasing commissions (0.04 ) (0.08 )
Straight-line rent revenue^^ (0.17 ) (0.15 )
Straight-line rent expense on ground leases 0.01 0.01
Amortization of acquired below-market leases (0.01 ) (0.01 )
Amortization of loan fees^^ 0.04 0.03
Stock compensation expense 0.07 0.05
AFFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted $ 1.21 $ 1.10
Weighted-average shares of common stock outstanding for calculating FFO, FFO, as adjusted, and AFFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted 72,584 71,366
(1) Calculated in accordance with standards established by the NAREIT Board of Governors in its April 2002 White Paper and related implementation guidance.
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Adjusted EBITDA

EBITDA represents earnings before interest, taxes, depreciation, and amortization, 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, including our pro rata share of amounts from consolidated and unconsolidated real estate joint ventures, 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, and impairments. 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 real estate 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 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 March 31,
2016 2015
Net income $ 9,966 $ 25,008
Net income attributable to noncontrolling interests (4,030 ) —
Interest ^(1)^ 25,541 23,240
Income taxes 1,095 1,122
Depreciation and amortization:
Consolidated 70,866 58,920
Noncontrolling interests share of consolidated real estate joint ventures (2,301 ) —
Our share of unconsolidated real estate joint ventures 743 282
Depreciation and amortization 69,308 59,202
EBITDA 101,880 108,572
Stock compensation expense 5,439 3,690
Impairment of real estate 28,980 14,510
Adjusted EBITDA $ 136,299 $ 126,772
(1) Refer to calculation under “Fixed-charge coverage ratio” within this section.
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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 purposes of calculating the margin ratio, we exclude the Adjusted EBITDA from our discontinued operations for each period presented. We believe excluding Adjusted EBITDA from our discontinued operations improves the consistency and comparability of the Adjusted EBITDA margins from period to period. Likewise, our Adjusted EBITDA is presented on a pro rata basis, to include our share of Adjusted EBITDA from consolidated and unconsolidated real estate joint ventures. Therefore, revenues are presented with only our pro rata share of revenues from consolidated and unconsolidated real estate joint ventures to improve the consistency and comparability from period to period.

The following table reconciles Adjusted EBITDA to Adjusted EBITDA – excluding discontinued operations (dollars in thousands):

Three Months Ended March 31,
2016 2015
Adjusted EBITDA $ 136,299 $ 126,772
Add back: operating loss from discontinued operations — 43
Adjusted EBITDA – excluding discontinued operations $ 136,299 $ 126,815
Revenues:
Consolidated $ 216,089 $ 196,753
Noncontrolling interests share of consolidated real estate joint ventures (8,190 ) —
Our share of unconsolidated real estate joint ventures 1,855 —
Revenues $ 209,754 $ 196,753
Adjusted EBITDA margins 65% 64%

Annualized base rent

Annualized base rent means the annualized fixed base rental amount in effect as of the end of the period, related to our operating RSF (using rental revenue computed on a straight-line basis in accordance with GAAP). ABR and measures computed using ABR are presented at 100% for all properties under our management, including properties held by our consolidated and unconsolidated real estate joint ventures.

Class A assets and AAA locations

Class A assets are properties clustered in AAA locations that provide innovative tenants with high-quality, dynamic, and collaborative ecosystems that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Class A assets generally command higher ABR than other classes of properties.

AAA locations are in close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Such locations are characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space.

Fixed-charge coverage ratio

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. We compute the fixed-charge coverage ratio on a pro rata basis to include only our share of amounts from consolidated and unconsolidated real estate joint ventures. Cash interest is equal to interest expense calculated in accordance with GAAP, plus capitalized 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 three months ended March 31, 2016, and on our annual report on Form 10-K for the year ended December 31, 2015.

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 March 31,
2016 2015
Adjusted EBITDA $ 136,299 $ 126,772
Interest:
Consolidated $ 24,855 $ 23,236
Noncontrolling interests share of consolidated real estate joint ventures — —
Our share of unconsolidated real estate joint ventures 686 4
Interest 25,541 23,240
Capitalized interest:
Consolidated 12,099 10,971
Noncontrolling interests share of consolidated real estate joint ventures — —
Our share of unconsolidated real estate joint ventures — 588
Capitalized interest 12,099 11,559
Amortization of loan fees:
Consolidated (2,759 ) (2,834 )
Noncontrolling interests share of consolidated real estate joint ventures — —
Our share of unconsolidated real estate joint ventures (33 ) (1 )
Amortization of loan fees (2,792 ) (2,835 )
Amortization of debt premium 86 82
Cash interest 34,934 32,046
Dividends on preferred stock 5,907 6,247
Fixed charges $ 40,841 $ 38,293
Fixed-charge coverage ratio:
– period annualized 3.3x 3.3x
– trailing 12 months 3.4x 3.3x

Initial stabilized yield (unlevered)

Initial stabilized yield is calculated as the quotient of the estimated amounts of NOI at stabilization and our investment in the property. Our initial stabilized yield 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.
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Average cash yield reflects cash rents, including contractual rent escalations after initial rental concessions have elapsed, calculated on a straight-line basis.

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. We compute the net debt to adjusted EBITDA ratio, on a pro rata basis, to include only our share of amounts from consolidated and unconsolidated real estate joint ventures. Net debt is equal to the sum of total consolidated debt less cash, cash equivalents, and restricted cash. Refer to “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 March 31, 2016 and December 31, 2015 (dollars in thousands):

March 31, 2016 December 31, 2015
Secured notes payable:
Consolidated $ 816,578 $ 809,818
Noncontrolling interests share of consolidated real estate joint ventures — —
Our share of unconsolidated real estate joint ventures 49,485 48,561
Secured notes payable 866,063 858,379
Unsecured senior notes payable ^(1)^ 2,031,284 2,030,631
Unsecured senior line of credit 299,000 151,000
Unsecured senior bank term loans ^(1)^ 944,637 944,243
Unamortized deferred financing costs:
Consolidated 28,474 30,103
Noncontrolling interests share of consolidated real estate joint ventures — —
Our share of unconsolidated real estate joint ventures 131 165
Unamortized deferred financing costs 28,605 30,268
Cash and cash equivalents:
Consolidated (146,197 ) (125,098 )
Noncontrolling interests share of consolidated real estate joint ventures 8,888 1,385
Our share of unconsolidated real estate joint ventures (3,318 ) (4,209 )
Cash and cash equivalents (140,627 ) (127,922 )
Less: restricted cash (14,885 ) (28,872 )
Net debt $ 4,014,077 $ 3,857,727
Adjusted EBITDA:
– quarter annualized $ 545,196 $ 586,120
– trailing 12 months $ 558,643 $ 549,116
Net debt to Adjusted EBITDA:
– quarter annualized 7.4 x 6.6 x
– trailing 12 months 7.2 x 7.0 x
(1) In accordance with the ASU adopted in January 2016 as discussed in Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies.”
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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, general and administrative expense, and net income attributable to noncontrolling interests. These amounts are presented to include our pro rata share of amounts from consolidated and unconsolidated real estate 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, including our pro rata share of amounts from consolidated and unconsolidated real estate joint ventures. NOI on a cash basis is NOI adjusted to exclude the effect of straight-line rent and amortization of below-market lease revenue 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 and amortization of below-market lease revenue adjustments to rental revenue.

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 a 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, which may 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.

Operating statistics

We present certain operating statistics related to our properties that include number of properties, ABR, ABR per occupied RSF, occupancy, RSF, leasing activity, rental rates, and contractual lease expirations. We believe these measures are useful to investors because they facilitate an understanding of certain trends for our properties. We compute operating statistics at 100% for all properties managed by us, including properties owned by our consolidated and unconsolidated real estate joint ventures.

Pro rata information

We present operating and balance sheet information on a pro rata basis, which is not in accordance with or intended to be a presentation in accordance with GAAP. The pro rata operating and balance sheet information presents our proportionate economic ownership of all entities that we do not wholly own. We calculate our proportionate share of each financial statement line as follows: (i) for each real estate joint venture that we consolidate in our financial statements but own less than 100%, we apply the noncontrolling interest economic ownership percentage to each financial statement line item to arrive at the amount of such noncontrolling interest share of the operating and balance sheet information for each joint venture; (ii) similarly, we have joint ventures that we do not control, and do not consolidate. We apply our economic ownership percentage to these unconsolidated real estate joint ventures to arrive at our proportionate share of the operating and balance sheet information.

Our pro rata share of assets and liabilities, or the revenues and expenses, does not represent our legal claim to those items. The joint venture agreement, for each entity that we do not wholly own, generally determines what equity holders can receive upon capital events such as sales or refinancing or in the event of a liquidation. Equity holders are normally entitled to their respective legal ownership of any residual cash from a joint venture only after all liabilities, priority distributions and claims have been repaid or satisfied.

We believe pro rata financial information can help investors estimate our economic interest and the impact of partially owned entities. Presenting pro rata financial information provides a perspective not immediately available from consolidated results and one that can supplement consolidated financial statements for the potential impact of  joint ventures on assets and liabilities, or revenues and expenses and other metrics presented, including NOI, same property comparisons, and credit metrics.

Pro rata information is limited as an analytical tool as the overall economic ownership interest does not represent our legal claim to each of our joint ventures’ assets, liabilities, or results of operations. In addition, pro rata financial information may include financial information related to unconsolidated real estate joint ventures that we do not control. Other peers that disclose pro rata financial information may present or compute the information differently, limiting comparative usefulness of the information. We believe that in order to facilitate a clear understanding of our operating results and our total assets and liabilities, pro rata financial information should be examined in conjunction with our consolidated statements of income and balance sheets. Pro rata financial information should not be considered an alternative to our consolidated financial statements, which are prepared in accordance with GAAP.

Same Properties’ NOI

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

Our share of unencumbered NOI as a percentage of total net operating income

Our share of unencumbered NOI as a percentage of total net operating income 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 our share of unencumbered NOI as a percentage of total net operating income 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. Our share of unencumbered NOI is derived from assets classified in continuing operations, including our pro rata share of amounts from consolidated and unconsolidated real estate joint ventures, which are not subject to any mortgage, deed of trust, lien, or other security interest, as of the period for which income is presented. Refer to 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 months ended March 31, 2016 and 2015 (dollars in thousands):

Three Months Ended March 31,
2016 2015
Our share of unencumbered NOI $ 117,698 $ 111,957
Our share of encumbered NOI 27,567 24,433
Our share of total NOI $ 145,265 $ 136,390
Our share of unencumbered NOI as a percentage of total NOI 81% 82%

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 March 31, 2016 (in thousands):

Annualized impact to future earnings due to variable-rate debt:
Rate increase of 1% $ (3,956 )
Rate decrease of 1% $ 1,717
Effect on fair value of total consolidated debt and interest rate swap agreements:
Rate increase of 1% $ (162,291 )
Rate decrease of 1% $ 160,618

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 March 31, 2016. 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 March 31, 2016 (in thousands):

Equity price risk:
Fair value increase of 10% $ 31,616
Fair value decrease of 10% $ (31,616 )

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 March 31, 2016 (in thousands):

Impact of potential future earnings due to foreign currency exchange rate:
Rate increase of 10% $ (6 )
Rate decrease of 10% $ 6
Effect on the fair value of net investment in foreign subsidiaries due to foreign currency exchange rate:
Rate increase of 10% $ 22,169
Rate decrease of 10% $ (22,169 )

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 three months ended March 31, 2016 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 March 31, 2016, 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 March 31, 2016.

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 March 31, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, 2015. 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.

ITEM 5. OTHER INFORMATION

Our discussion of federal income tax considerations in Exhibit 99.1 attached hereto, which is incorporated herein by reference, supersedes and replaces, in its entirety, the disclosure under the heading “Federal Income Tax Considerations” in the prospectus dated November 3, 2015, which is a part of our Registration Statement on Form S-3 (File No. 333-207762), as amended. Our updated discussion addresses recently enacted tax law changes.

ITEM 6. EXHIBITS

Exhibit<br><br>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.
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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).
4.13* Indenture, dated as of November 17, 2015, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Wilmington Trust, National Association, as Trustee, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on November 17, 2015.
4.14* Supplemental Indenture No. 1, dated as of November 17, 2015, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Wilmington Trust, National Association, as Trustee, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on November 17, 2015.
4.15* Form of 4.30% Senior Note due 2026 (included in Exhibit 4.14 above).
10.1 (1) Third Amended and Restated Executive Employment Agreement between the Company and Dean A. Shigenaga, effective January 1, 2016.
10.2 (1) Fourth Amended and Restated Executive Employment Agreement between the Company and Stephen A. Richardson, effective January 1, 2016.
10.3 (1) Amended and Restated Executive Employment Agreement between the Company and Peter M. Moglia, effective January 1, 2016.
10.4 (1) Third Amended and Restated Executive Employment Agreement between the Company and Thomas J. Andrews, effective January 1, 2016.
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.
99.1 Federal Income Tax Considerations
101 The following materials from the Company’s quarterly report on Form 10-Q for the three months ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2016, and December 31, 2015 (unaudited), (ii) Consolidated Statements of Income for the three months ended March 31, 2016 and 2015 (unaudited), (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015 (unaudited), (iv) Consolidated Statement of Changes in Stockholders’ Equity and Noncontrolling Interests for the three months ended March 31, 2016 (unaudited), (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited).

(*) Incorporated by reference.

(1) Management contract or compensatory arrangement.

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 May 3, 2016.

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

107

		Exhibit

EXHIBIT 10.1

THIRD AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

This THIRD AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”), made between Alexandria Real Estate Equities, Inc. (the “Company”) and Dean A. Shigenaga (“Employee”), amends and restates in its entirety the Second Amended and Restated Executive Employment Agreement between the Company and Employee that was executed by the parties on February 25, 2011, with an effective date of January 1, 2011 (the “2011 Agreement”). This Agreement is effective as of January 1, 2016 (the “Effective Date”).

RECITALS

WHEREAS, Employee is currently employed by the Company as its Executive Vice President, Chief Financial Officer, Assistant Secretary, and Treasurer, having initially been a party to an offer letter agreement dated December 5, 2000 (the “Offer Letter”);

WHEREAS, the Offer Letter was replaced by an Amended and Restated Executive Employment Agreement between the Company and Employee that was effective as of January 1, 2007 (the “2007 Agreement”);

WHEREAS, the 2007 Agreement subsequently was replaced by an Amended and Restated Executive Employment Agreement that was effective as of January 1, 2010 (the “2010 Agreement”);

WHEREAS, the 2010 Agreement subsequently was replaced by the 2011 Agreement; and

WHEREAS, the Company desires to continue to employ Employee in his current roles, and Employee is willing to continue such employment by the Company, on the amended and restated terms and subject to the conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the parties hereto agree as follows:

SECTION 1. POSITION; DUTIES; LOCATION.

Employee agrees to continue to be employed by and to continue to serve the Company as Executive Vice President, Chief Financial Officer (“CFO”), Assistant Secretary, and Treasurer, and the Company agrees to employ and retain Employee in such capacities. In addition, Employee agrees to serve in such capacities for the Company’s subsidiaries, and in such additional or different capacities consistent with Employee’s current positions as CFO and an executive officer of the Company, as may be determined by the Board of Directors of the Company (the “Board”). Employee shall devote such of Employee’s business time, energy, and skill to the affairs of the Company and its subsidiaries as shall be necessary to perform the duties of such positions. Notwithstanding the foregoing, and subject to any written policies of the Company, nothing in this Agreement shall preclude Employee from: (i) engaging in charitable and community affairs and not-for-profit activities, so long as they are consistent with Employee’s duties and responsibilities under this Agreement; (ii) managing Employee’s personal investments; (iii) serving on the boards of directors of non-profit companies; and (iv) serving on the boards of directors of other for-profit companies; provided, however, that, prior to accepting a position on any such for-profit board of directors, Employee shall obtain the approval of the Board (or, if applicable, the appropriate committee thereof), which shall be provided or withheld within the Board’s sole discretion; and provided, further, however, that Employee shall submit to the Board (or the appropriate committee thereof) a list of any for-profit boards of directors on which Employee is serving as of the Effective Date

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of this Agreement or thereafter. Employee shall continue to report to the Company’s Chief Executive Officer. Employee shall be based in the Los Angeles metropolitan area, except for required travel on the Company’s business.

SECTION 2. COMPENSATION AND OTHER BENEFITS.

In consideration of Employee’s employment, and except as otherwise provided herein, Employee shall receive from the Company the compensation and benefits described in this Section 2. Employee authorizes the Company to deduct and withhold from all compensation to be paid to Employee any and all sums required to be deducted or withheld by the Company pursuant to the provisions of any federal, state, or local law, regulation, ruling, or ordinance, including, but not limited to, income tax withholding and payroll taxes.

2.1    Base Salary. Subject to the terms and conditions set forth herein, the Company agrees to pay Employee a base salary at the rate of four hundred ninety-five thousand dollars ($495,000) per year, less standard payroll deductions and withholdings, payable on the Company’s regular payroll schedule (the “Base Salary”). Employee’s Base Salary shall be reviewed no less frequently than annually by the Board (or such committee as may be appointed by the Board for such purpose) on or before September 30 each year. The Base Salary payable to Employee shall be increased as of each January 1, by action taken no later than September 30 of such year, and at such additional times as the Board or a committee of the Board may deem appropriate, to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive annual increase; provided, however, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the “Consumer Price Index, Los Angeles, California, All Items,” published by the U.S. Department of Labor (using January 1, 2007, as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of the Company hereunder, and, once established at an increased specified rate, Employee’s Base Salary shall not be reduced unless Employee otherwise agrees in writing.

2.2    Annual Bonus.  Employee shall be eligible to receive a bonus for each calendar year of employment with the Company (each a “Bonus Year”) in an amount to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Employee’s performance and the performance of the Company during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Bonuses are not guaranteed, and the Board may determine that Employee has not earned a bonus for any Bonus Year. Any earned bonus shall be payable within 185 days after the end of the relevant Bonus Year or as soon thereafter as reasonably practicable, but in no event after the end of the year following the relevant Bonus Year; provided, however, that in the event Employee terminates employment with the Company for any reason other than a termination by the Company for Cause (as defined herein), after the end of the Bonus Year and prior to the date when such bonuses are paid by the Company to senior executives, then Employee shall receive the same cash bonus (not including any restricted stock grant shares) that would have been awarded to Employee in the absence of such termination, and it shall be paid to Employee at the same time that cash bonuses are paid by the Company to other senior executives.

2.3    Restricted Stock; Options. Employee shall be eligible for equity awards from time to time as shall be determined by the Compensation Committee of the Board (the “Compensation Committee”) in its sole discretion, and subject to such vesting, exercisability, and other provisions as the Compensation Committee may determine in its discretion, after reviewing the performance of both Employee and the Company. All equity awards shall be governed in all respects by the terms of the applicable stock option or restricted stock agreements, grant notice, and plan documents, except as specifically provided in Sections 3.4(b), 3.5, and 3.7(b) hereof. Notwithstanding anything in this Agreement to the contrary, upon a Change in Control (as defined herein), (i) any outstanding equity awards held by Employee whether in the form of stock options or shares of restricted stock) that were granted prior to the Effective Date shall become fully vested, and (ii) any outstanding stock options held by Employee that were granted prior to the Effective Date shall become exercisable for their full terms without regard to the termination of Employee’s employment.

2.4    Vacation. Employee shall be entitled to accrue and use paid vacation in accordance with the terms of the Company’s vacation policy and practices, provided, however, that in no event will Employee’s vacation accrual rate be lower than three (3) weeks per year.

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2.5    Other Benefits. Employee shall be eligible to participate in such of the Company’s benefit and deferred compensation plans as may be made available to executive officers of the Company, including, without limitation, the Company’s stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental plans, vision plans, sick pay, medical plans, personal catastrophe and accidental death insurance plans, financial planning, automobile arrangements, retirement plans, and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of the Company, such service shall be deemed to have commenced on December 27, 2000, which was Employee’s first date of employment with the Company.

2.6    Reimbursement for Expenses.  The Company shall reimburse Employee for all reasonable out-of-pocket business expenses (including, but not limited to, business entertainment expenses) incurred by Employee for the purpose of and in connection with the performance of Employee’s services pursuant to this Agreement. Employee shall be entitled to such reimbursement upon the presentation by Employee to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with the Company’s policies. In addition, Employee shall be entitled to reimbursement for: (i) dues and membership fees in professional organizations and industry associations in which Employee is currently a member or becomes a member; and (ii) appropriate industry seminars and mandatory continuing education. The amount of expenses eligible for reimbursement pursuant to this Section 2.6 during a calendar year shall not affect the amount of expenses eligible for reimbursement in any other calendar year. Without extending the time of payment that would apply in the absence of this sentence, the Company shall reimburse Employee for any expense eligible for reimbursement pursuant to this Section 2.6 in accordance with the Company’s applicable expense reimbursement policies and procedures and on or before the end of the calendar year following the calendar year in which the expense was incurred.

SECTION 3. TERMINATION; SEVERANCE.

3.1    Term and Termination. The term of this Agreement (“Term”) shall be the period commencing on the Effective Date and ending on the date that this Agreement is terminated by either party pursuant to the provisions of this Agreement. Employee is employed at will, meaning that, subject to the terms and conditions set forth herein, either the Company or Employee may terminate Employee’s employment at any time, with or without Cause.

3.2    Compensation upon Termination. Upon the termination of Employee’s employment for any reason, the Company shall pay Employee all of Employee’s accrued and unused vacation and unpaid Base Salary earned through Employee’s last day of employment (the “Separation Date”). In addition, Employee will receive reimbursement of business expenses as provided under Section 2.6, and any bonus owed under Section 2.2 shall be paid in accordance with the terms of Section 2.2.

3.3    Termination for Cause. At any time, the Company shall be entitled to terminate this Agreement for Cause by written notice to Employee provided in accordance with Section 3.10(b), which notice shall specify the reason for and the effective date of such termination. In that event, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.4    Termination Without Cause or Resignation for Good Reason Not in Connection with a Change in Control. The Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, and provided that Employee is not eligible for severance benefits under Section 3.7 (Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control), Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to one (1) year of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to

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the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement (as defined herein)).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in the amount of the cash bonus that Employee earned for the previous year, if any, or if such amount has not been determined at the time of termination, for the year prior to the previous year (provided, however, that if termination is on or after a Change in Control, and Section 3.7 does not apply, the amount shall in no event be lower than the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not to below zero) by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue coverage under the Company’s health insurance plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact) and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates),

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plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.5    Termination upon Death or Disability. The Agreement shall terminate immediately upon Employee’s death or Disability (as defined herein). In that event, the Company shall provide Employee (or, in the event of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) with the compensation set forth in Section 3.2, as well as the severance benefits set forth in Section 3.4.

3.6    Resignation. Employee shall be entitled to resign at any time upon written notice to the Company thirty (30) days prior to the effective date of such resignation, which shall be specified in Employee’s notice of resignation. Unless Employee’s resignation is for Good Reason, upon Employee’s resignation, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.7    Termination Without Cause Or Resignation For Good Reason In Connection With A Change In Control. Upon or within two (2) years following a Change in Control, the Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to two (2) years of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in an amount equal to two (2) times the amount of the cash bonus that Employee earned for the previous year, if any, or, if such amount has not been determined at the time of termination, two (2) times the amount for the year prior to the previous year (provided, however, that the amount shall in no event be lower than two (2) times the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not to below zero)

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by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue Employee’s coverage under the Company’s health insurance plans in accordance with COBRA or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact), and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates), plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.8    Release. As a condition to receipt of any accelerated vesting or severance benefits under this Agreement, Employee (or, in the event of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) shall be required to provide the Company with an effective general release of any and all known and unknown claims against the Company and other specifically identified released parties, substantially in the form attached hereto as Exhibit A (the “Release”), within the applicable time period set forth in the specific form of Release provided to Employee by the Company, but in no event more than sixty (60) days following the Separation Date.

3.9    Payment of Severance Benefits; Section 409A.  In the event that Employee is entitled to any severance benefits pursuant to Sections 3.4, 3.5, or 3.7 of this Agreement (other than any accelerated vesting under Sections 3.4(b), 3.5, or 3.7(b)), such severance benefits shall be payable as follows: (1) (i) any payment of Base Salary pursuant to Sections 3.4(a) or 3.5 shall be made in the form of substantially equal installments for a period of one (1) year following the Separation Date, and (ii) any payment of Base Salary pursuant to Section 3.7(a) shall be made in the form of substantially equal installments for a period of two (2) years following the Separation Date, provided, however, that any payments delayed pending the effective date of the Release shall be paid in arrears no later than ten (10) days after such effective date; (2) any payment of bonus pursuant to Sections 3.4(c), 3.5, or 3.7(c) shall be made in the form of a lump sum within ten (10) days following the effective date of the Release; and (3) any restricted stock grants pursuant to Sections 3.4(d), 3.5, or 3.7(d) shall be made in full within thirty (30) days following the effective date of the Release; the parties being in agreement that none of the foregoing is “deferred compensation” under Section 409A (as defined below), except for amounts under the foregoing clause (1) that are payable and paid more than two

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and one-half (2 1/2) months following the end of the calendar year in which Employee’s Separation from Service (as defined below) occurs; provided, however, that:

(a)    Payment of such amounts and any other amounts or benefits provided under this Agreement in connection with Employee’s termination of employment that constitute “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986 as amended (the "Code"), and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”), shall not commence in connection with Employee’s termination of employment unless and until Employee has also incurred a “separation from service” (as such term is defined in Treasury Regulations Section 1.409A-1(h) (“Separation from Service”)), unless the Company reasonably determines that such amounts and benefits may be provided to Employee without causing Employee to incur the adverse personal tax consequences under Section 409A; and

(b)    It is intended that (i) each installment of any amounts or benefits payable under this Agreement be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i) (and each such installment is hereby designated as separate for such purpose); (ii) all payments of any such amounts or benefits satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9)(iii); and (iii) any such amounts or benefits consisting of premiums payable under COBRA also satisfy, to the greatest extent possible, the exemption from the application of Section 409A provided under Treasury Regulations Section 1.409A-1(b)(9)(v). However, if any such amounts or benefits constitute “deferred compensation” under Section 409A and Employee is a “specified employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i), then, solely to the extent necessary to avoid the imposition of the adverse personal tax consequences under Section 409A, the timing of such benefit payments shall be delayed as follows, provided that the Release has become effective in accordance with its terms: on the earlier to occur of (a) the date that is six (6) months and one (1) day after Employee’s Separation from Service and (b) the date of Employee’s death (such applicable date, the “Delayed Initial Payment Date”), the Company shall (1) pay Employee a lump sum amount equal to the sum of the benefit payments that Employee would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the benefits had not been delayed pursuant to this Section 3.9(b), and (2) commence paying the balance, if any, of the benefits in accordance with the applicable payment schedule.

3.10    Definitions. For purposes of this Agreement, the following definitions shall apply:

(a)    Disability. The term “Disability” shall mean a physical or mental disability that renders Employee unable to perform one or more of the essential functions of Employee’s job, as determined by two (2) licensed physicians selected jointly by the Board and Employee, for a period of 180 days during any 365-day period.

(b)    Cause. For purposes of this Agreement, “Cause” shall mean: (1) Employee’s conviction of any felony involving moral turpitude, fraud, or dishonesty; (2) Employee’s persistent, willful, and continual failure to substantially perform Employee’s material job duties under this Agreement (other than a failure resulting from Employee’s Disability); (3) Employee’s material and willful breach of any material statutory or fiduciary duty to the Company; or (4) Employee’s material and willful breach of this Agreement or the Proprietary Information Agreement.  In order to terminate this Agreement for Cause under subparts (2) through (4) in the preceding sentence, the Company must provide specific, detailed written notice to Employee of the occurrence of one or more of the foregoing circumstances within ninety (90) days following the initial occurrence of the circumstance, and if cured by Employee within thirty (30) days following receipt of notice, such event shall not provide Cause for termination by the Company; provided, however, that if the circumstance is part of an ongoing series of actions or behaviors that the Company considers to be Cause, the Company shall be entitled to provide such written notice to Employee within ninety (90) days following any occurrence of such action or behavior. For purposes of this provision: (i) no act or failure to act, on the part of the Employee, shall be considered “willful” unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee’s action or omission was in the best interests of the Company; and (ii) no breach shall be considered “material” unless it has caused or is likely to cause material harm to the Company.

(c)    Good Reason. For purposes of this Agreement, “Good Reason” shall mean, without Employee’s express written consent, the occurrence of any of the following circumstances: (1) the assignment to Employee of any duties materially inconsistent with the position in the Company that Employee held immediately prior, or a materially adverse alteration in the nature or status of Employee’s responsibilities from those in effect

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immediately prior to such change; (2) a material reduction by the Company in Employee’s annual base salary as in effect on the date hereof or as the same may be increased from time to time (provided, however, that a reduction in base salary imposed prior to a Change in Control in connection with an across-the-board reduction of base salaries of the Company’s other Executive Vice Presidents, Senior Vice Presidents, and other similarly situated employees, shall not provide grounds for Good Reason); (3) the relocation of Employee’s offices to a location outside the greater Los Angeles/Pasadena metropolitan area, or requiring Employee to travel on Company business to an extent materially greater than Employee’s previous business travel obligations; (4) the failure by the Company to pay Employee any material portion of Employee’s current compensation except pursuant to an across-the-board compensation deferral similarly affecting all the employees of the Company (and all the employees of any entity whose actions resulted in a Change in Control, if such compensation deferral occurs after a Change in Control), or to pay Employee any material portion of an installment of deferred compensation under any deferred compensation program of the Company, in each case within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which Employee participates that is material to Employee’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed previously; (6) a material reduction in the benefits provided to Employee under any of the Company’s directors and officers liability insurance, life insurance, medical, health and accident, or disability plans in which Employee was participating previously (provided, however, that a modification prior to a Change in Control of any such benefits which impacts the Company’s other Executive Vice Presidents, Senior Vice Presidents, and other similarly situated employees, in the same or a substantially similar manner as Employee, shall not provide grounds for Good Reason), or the failure by the Company to provide Employee with substantially the same number of paid vacation days to which Employee is entitled in accordance with the Company’s normal vacation policy in effect at such time; or (7) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement. In order to terminate this Agreement for Good Reason, Employee must provide written notice to the Company of the occurrence of one or more of the foregoing circumstances within ninety (90) days following the initial occurrence of the circumstance; provided, however, that the Company shall not be required to provide any benefits under Section 3.4 or Section 3.7 if it is able to remedy and does remedy such circumstance within a period of thirty (30) days following such notice.

(d)    Change in Control. A “Change in Control” shall be deemed to have occurred if:

(i)    any Person (as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a Company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the Beneficial Owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(ii)    the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election, or nomination for election was previously so approved or recommended; or

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(iii)    there is consummated a merger or consolidation of the Company with any other Company, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)    the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least seventy-five percent (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

3.11    No Offset. Employee shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, nor shall Employee’s entitlement to any severance benefit hereunder be offset by any earned income Employee may receive from employment or consulting with a third party after Employee’s employment with the Company.

SECTION 4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT.

Employee shall be required to continue compliance with Employee’s obligations under the Employee Proprietary Information and Inventions Agreement with the Company that Employee previously executed (the “Proprietary Information Agreement”), a copy of which is attached as Exhibit B.

SECTION 5. COMPANY POLICIES.

Employee shall be required to continue compliance with the Company’s employee policies and procedures established by the Company from time to time.

SECTION 6. ASSIGNABILITY.

This Agreement is binding upon, and inures to the benefit of, the parties and their respective heirs, executors, administrators, personal representatives, successors, and assigns. The Company may assign its rights or delegate its duties under this Agreement at any time and from time to time. However, the parties acknowledge that the availability of Employee to perform services and the covenants provided by Employee hereunder are personal to Employee and have been a material consideration for the Company to enter into this Agreement. Accordingly, Employee may not assign any of Employee’s rights or delegate any of Employee’s duties under this Agreement, either voluntarily or by operation of law, without the prior written consent of the Company, which may be given or withheld by the Company in its sole and absolute discretion.

SECTION 7. NOTICES.

All notices and other communications under this Agreement shall be in writing and shall be given by facsimile, first-class mail (certified or registered with return receipt requested), or Federal Express overnight delivery, and shall be deemed to have been duly given three days after mailing or twenty-four (24) hours after transmission of a facsimile or Federal Express overnight delivery (if the receipt of the facsimile or Federal Express overnight delivery is confirmed) to the respective persons named below:

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If to the Company:    Alexandria Real Estate Equities, Inc.

385 E. Colorado Boulevard, Suite 299

Pasadena, CA  91101

Telephone:  (626) 578-0777

If to Employee:    Dean Shigenaga

c/o Alexandria Real Estate Equities, Inc.

385 East Colorado Boulevard, Suite 299

Pasadena, CA 91101

Any Party may change such Party’s address for notices by notice duly given pursuant hereto.

SECTION 8. ARBITRATION.

To ensure the timely and economical resolution of disputes that may arise in connection with Employee’s employment with the Company, Employee and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Employee’s employment, or the termination of Employee’s employment, including, but not limited to, statutory claims, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in Los Angeles, California, conducted by JAMS, Inc. (“JAMS”) under the then applicable JAMS rules. By agreeing to this arbitration procedure, both Employee and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The Company acknowledges that Employee will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that Employee or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required of the Employee if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either Employee or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

SECTION 9. MISCELLANEOUS.

9.1    Entire Agreement. This Agreement, including its exhibits, contains the full, complete, and exclusive embodiment of the entire agreement of the parties with regard to the subject matter hereof and supersedes all other communications, representations, or agreements, oral or written, including, but not limited to, the Offer Letter, the 2007 Agreement, the 2010 Agreement, the 2011 Agreement, and all negotiations and communications between the parties relating to this Agreement. Employee has not entered into this Agreement in reliance on any representations, written or oral, other than those contained herein. Any ambiguity in this document shall not be construed against either party as the drafter.

9.2    Amendment. This Agreement may not be amended or modified except by an instrument in writing duly executed by Employee and the Company’s Chief Executive Officer.

9.3    Applicable Law; Choice of Forum. This Agreement has been made and executed under, and will be construed and interpreted in accordance with, the laws of the State of California, without regard to conflict of laws principles.

9.4    Provisions Severable. If any provision of this Agreement is held to be invalid, illegal, or unenforceable, in whole or in part, such invalidity, illegality, or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it

10.

valid, lawful, and enforceable in a manner consistent with the intent of the parties to the extent compatible with the applicable law as it shall then appear.

9.5    Non-Waiver of Rights and Breaches. Any waiver by a party of any breach of any provision of this Agreement shall be in writing and will not be deemed to be a waiver of any subsequent breach of that provision, or of any breach of any other provision of this Agreement. No failure or delay in exercising any right, power, or privilege granted to a party under any provision of this Agreement will be deemed a waiver of that or any other right, power, or privilege. No single or partial exercise of any right, power, or privilege granted to a party under any provision of this Agreement will preclude any other or further exercise of that or any other right, power, or privilege.

9.6    Headings. The headings of the Sections and Paragraphs of this Agreement are inserted for ease of reference only, and will have no effect in the construction or interpretation of this Agreement.

9.7    Counterparts. This Agreement and any amendment or supplement to this Agreement may be executed in two or more counterparts, each of which will constitute an original but all of which will together constitute a single instrument. Transmission by facsimile or .pdf of an executed counterpart signature page hereof by a party hereto shall constitute due execution and delivery of this Agreement by such party.

9.8    Indemnification. In addition to any rights to indemnification to which Employee may be entitled under the Company’s Charter and By-Laws, the Company shall indemnify Employee at all times during and after Employee’s employment to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland, or any successor provision thereof and any other applicable state law, and shall pay Employee’s expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws.

IN WITNESS WHEREOF, the parties hereto have caused this Third Amended and Restated Executive Employment Agreement to be duly executed on the dates identified below, effective as of the Effective Date stated above herein.

ALEXANDRIA REAL ESTATE EQUITIES, INC.    DEAN A. SHIGENAGA

By: /s/ Joel S. Marcus        By: /s/ Dean A. Shigenaga

Joel S. Marcus

Chief Executive Officer

Date: March 28, 2016        Date: March 28, 2016

11.

EXHIBIT A

SEPARATION DATE RELEASE

(To be signed on or within 21 days after the Separation Date)

In exchange for the severance benefits and/or other consideration to be provided to me by Alexandria Real Estate Equities, Inc. (the “Company”), and as required by the Third Amended and Restated Executive Employment Agreement between the Company and me effective as of January 1, 2016 (the “Agreement”), I hereby provide the following Separation Date Release (the “Release”).

I hereby generally and completely release the Company and its parent and subsidiary entities, and its and their respective directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities, and obligations, both known and unknown, arising out of or in any way related to events, acts, conduct, or omissions occurring at any time prior to or at the time that I sign this Release (collectively, the “Released Claims”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing (including, but not limited to, any claims based on or arising from the Agreement); (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and Medical Leave Act, the California Family Rights Act, the California Labor Code (as amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, applicable law, or applicable directors and officers liability insurance; and (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I acknowledge and agree that I am hereby waiving my right to any monetary benefits in connection with any such claim, charge, or proceeding.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing that: (1) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose voluntarily to sign it earlier); (4) I have seven (7) days following the date I sign this Release to revoke it by providing written notice of revocation to the Company’s Chief Executive Officer; and (5) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it if I do not revoke it (the “Effective Date”).

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. I acknowledge that I have read and understand Section 1542 of the California Civil Code, which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to my release of claims herein, including, but not limited to, the release of unknown and unsuspected claims.

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I hereby represent that I have been paid all compensation owed, and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, pursuant to the federal Family and Medical Leave Act, the California Family Rights Act, any Company policy or applicable law, and I have not suffered any on-the-job injury or illness for which I have not already filed a workers’ compensation claim.

I further agree: (1) not to disparage the Company, or any of the other Released Parties, in any manner likely to be harmful to its or their business, business reputation, or personal reputation (although I may respond accurately and fully to any question, inquiry, or request for information as required by legal process); (2) not to voluntarily (except in response to legal compulsion) assist any third party in bringing or pursuing any proposed or pending litigation, arbitration, administrative claim, or other formal proceeding against the Company, its parent, or subsidiary entities, affiliates, officers, directors, employees, or agents; and (3) to cooperate fully with the Company, by voluntarily (without legal compulsion) providing accurate and complete information, in connection with the Company’s actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters, arising from events, acts, or failures to act that occurred during the period of my employment by the Company.

By: /s/ Dean A. Shigenaga

Dean A. Shigenaga

Date: March 28, 2016

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EXHIBIT B

EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

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		Exhibit

EXHIBIT 10.2

FOURTH AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

This FOURTH AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”), made between Alexandria Real Estate Equities, Inc. (the “Company”) and Stephen A. Richardson (“Employee”), amends and restates in its entirety the Third Amended and Restated Executive Employment Agreement between the Company and Employee that was effective as of October 25, 2011 (the “Third Amended Agreement”). This Agreement is effective as of January 1, 2016 (the “Effective Date”).

RECITALS

WHEREAS, Employee is currently employed by the Company as its Chief Operating Officer, and Executive Vice President/Regional Market Director – San Francisco Bay, pursuant to the Third Amended Agreement; and

WHEREAS, the Company desires to continue to employ Employee in his current capacities, and Employee is willing to continue such employment by the Company on the amended and restated terms and subject to the conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the parties hereto agree as follows:

SECTION 1. POSITION; DUTIES; LOCATION.

Employee agrees to continue to be employed by the Company and to serve in the position of its Chief Operating Officer, and Executive Vice President/Regional Market Director – San Francisco, and the Company agrees to employ Employee in such capacities. Employee shall continue to report to the Company’s Chief Executive Officer (the “CEO”), and Employee shall perform the responsibilities and duties as determined from time to time by the CEO. In addition, Employee agrees to serve in such capacities for the Company’s subsidiaries, and in such additional or different capacities consistent with Employee’s current position as a senior executive of the Company, as may be determined by the Board of Directors of the Company (the “Board”). Employee shall devote such of Employee’s business time, energy, and skill to the affairs of the Company and its subsidiaries as shall be necessary to perform the duties of such positions. Notwithstanding the foregoing, and subject to any written policies of the Company, nothing in this Agreement shall preclude Employee from: (i) engaging in charitable and community affairs and not-for-profit activities, so long as they are consistent with Employee’s duties and responsibilities under this Agreement; (ii) managing Employee’s personal investments; (iii) serving on the boards of directors of non-profit companies; and (iv) serving on the boards of directors of other for-profit companies; provided, however, that, prior to accepting a position on any such for-profit board of directors, Employee shall obtain the approval of the Board (or, if applicable, the appropriate committee thereof), which shall be provided or withheld within the Board’s sole discretion; and provided, further, however, that Employee shall submit to the Board (or the appropriate committee thereof) a list of any for-profit boards of directors on which Employee is serving as of the Effective Date of this Agreement. Employee shall be based in the San Francisco Bay Area, except for required travel on the Company’s business. Notwithstanding the foregoing, the Company retains the sole discretion to change Employee’s title, reporting relationship, duties, and assigned office location (provided, however, that certain changes by the Company without Employee’s express written consent could give rise to grounds for a “Good Reason” resignation and receipt of compensation and benefits as provided in Sections 3.4 and 3.7 herein).

SECTION 2. COMPENSATION AND OTHER BENEFITS.

In consideration of Employee’s employment, and except as otherwise provided herein, Employee shall receive from the Company the compensation and benefits described in this Section 2. Employee authorizes the Company to

deduct and withhold from all compensation to be paid to Employee any and all sums required to be deducted or withheld by the Company pursuant to the provisions of any federal, state, or local law, regulation, ruling, or ordinance, including, but not limited to, income tax withholding and payroll taxes.

2.1    Base Salary. Subject to the terms and conditions set forth herein, the Company agrees to pay Employee a base salary at the rate of four hundred ninety-five thousand dollars ($495,000) per year, less standard payroll deductions and withholdings, payable on the Company’s regular payroll schedule (the “Base Salary”). Employee’s Base Salary shall be reviewed no less frequently than annually by the Board (or such committee as may be appointed by the Board for such purpose) on or before September 30 each year. The Base Salary payable to Employee shall be increased as of January 1 each year, by action taken no later than September 30 of such year, and at such additional times as the Board or a committee of the Board may deem appropriate, to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive annual increase; provided, however, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the “Consumer Price Index, San Francisco, California, All Items,” published by the U.S. Department of Labor (using January 1, 2006, as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of the Company hereunder, and, once established at an increased specified rate, Employee’s Base Salary shall not be reduced unless Employee otherwise agrees in writing.

2.2    Annual Bonus.  Employee shall be eligible to receive a bonus for each calendar year of employment with the Company (each a “Bonus Year”) in an amount to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Employee’s performance and the performance of the Company during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant.  Bonuses are not guaranteed, and the Board may determine that Employee has not earned a bonus for any Bonus Year. Any earned bonus shall be payable within 185 days after the end of the relevant Bonus Year or as soon thereafter as reasonably practicable, but in no event after the end of the year following the relevant Bonus Year; provided, however, that in the event Employee terminates employment with the Company for any reason other than a termination by the Company for Cause (as defined herein), after the end of the Bonus Year and prior to the date when such bonuses are paid by the Company to senior executives, then Employee shall receive the same cash bonus (not including any restricted stock grant shares) that would have been awarded to Employee in the absence of such termination, and it shall be paid to Employee at the same time that cash bonuses are paid by the Company to other senior executives.

2.3    Restricted Stock; Options. Employee shall be eligible for equity awards from time to time as shall be determined by the Compensation Committee of the Board (the “Compensation Committee”) in its sole discretion, and subject to such vesting, exercisability, and other provisions as the Compensation Committee may determine in its discretion, after reviewing the performance of both Employee and the Company. All equity awards shall be governed in all respects by the terms of the applicable stock option or restricted stock agreements, grant notice and plan documents, except as specifically provided in Sections 3.4(b), 3.5, and 3.7(b) hereof. Notwithstanding anything in this Agreement to the contrary, upon a Change in Control (as defined herein), any outstanding equity awards held by Employee (whether in the form of stock options or shares of restricted stock) that were granted prior to the Effective Date shall become fully vested.

2.4    Vacation. Employee shall be entitled to accrue and use paid vacation in accordance with the terms of the Company’s vacation policy and practices, provided, however, that in no event will Employee’s vacation accrual rate be lower than three (3) weeks per year.

2.5    Other Benefits. Employee shall be eligible to participate in such of the Company’s benefit and deferred compensation plans as may be made available to executive officers of the Company, including, without limitation, the Company’s stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental plans, vision plans, sick pay, medical plans, personal catastrophe and accidental death insurance plans, financial planning, automobile arrangements, retirement plans, and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of the Company, such service shall be deemed to have commenced on February 15, 2000, which was Employee’s first date of employment with the Company.

2.6    Reimbursement for Expenses.  The Company shall reimburse Employee for all reasonable out-of-pocket business expenses (including, but not limited to, business entertainment expenses) incurred by Employee for the purpose of and in connection with the performance of Employee’s services pursuant to this Agreement. Employee shall be entitled to such reimbursement upon the presentation by Employee to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with the Company’s policies. In addition, Employee shall be entitled to reimbursement for: (i) dues and membership fees in professional organizations and industry associations in which Employee is currently a member or becomes a member; and (ii) appropriate industry seminars and mandatory continuing education. The amount of expenses eligible for reimbursement pursuant to this Section 2.6 during a calendar year shall not affect the amount of expenses eligible for reimbursement in any other calendar year. Without extending the time of payment that would apply in the absence of this sentence, the Company shall reimburse Employee for any expense eligible for reimbursement pursuant to this Section 2.6 in accordance with the Company’s applicable expense reimbursement policies and procedures and on or before the end of the calendar year following the calendar year in which the expense was incurred.

SECTION 3. TERMINATION; SEVERANCE.

3.1    Term and Termination. The term of this Agreement (the “Term”) shall be the period commencing on the Effective Date and ending on the date that this Agreement is terminated by either party pursuant to the provisions of this Agreement. Employee is employed at-will, meaning that, subject to the terms and conditions set forth herein, either the Company or Employee may terminate Employee’s employment at any time, with or without Cause.

3.2    Compensation upon Termination. Upon the termination of Employee’s employment for any reason, the Company shall pay Employee all of Employee’s accrued and unused vacation and unpaid Base Salary earned through Employee’s last day of employment (the “Separation Date”). In addition, Employee will receive reimbursement of business expenses as provided under Section 2.6, and any bonus owed under Section 2.2 shall be paid in accordance with the terms of Section 2.2.

3.3    Termination for Cause. At any time, the Company shall be entitled to terminate this Agreement for Cause by written notice to Employee provided in accordance with Section 3.10(b), which notice shall specify the reason for and the effective date of such termination. In that event, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.4    Termination Without Cause or Resignation for Good Reason Not in Connection with a Change In Control. The Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, and provided that Employee is not eligible for severance benefits under Section 3.7 (Termination Without Cause or Resignation for Good Reason in Connection with a Change In Control), Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to one (1) year of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement (as defined herein)).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in the amount of the cash bonus that Employee earned for the previous year, if any, or if such

amount has not been determined at the time of termination, for the year prior to the previous year (provided, however, that if termination is on or after a Change in Control, and Section 3.7 does not apply, the amount shall in no event be lower than the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not to below zero) by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue coverage under the Company’s health insurance plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact) and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates), plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.5    Termination upon Death or Disability. The Agreement shall terminate immediately upon Employee’s death or Disability (as defined herein). In that event, the Company shall provide Employee (or, in the event

of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) with the compensation set forth in Section 3.2, as well as the severance benefits set forth in Section 3.4.

3.6    Resignation. Employee shall be entitled to resign at any time upon written notice to the Company thirty (30) days prior to the effective date of such resignation, which shall be specified in Employee’s notice of resignation. Unless Employee’s resignation is for Good Reason, upon Employee’s resignation, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.7    Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control. Upon or within two (2) years following a Change in Control, the Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to two (2) years of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in an amount equal to two (2) times the amount of the cash bonus that Employee earned for the previous year, if any, or, if such amount has not been determined at the time of termination, two (2) times the amount for the year prior to the previous year (provided, however, that the amount shall in no event be lower than two (2) times the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not below zero) by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee

was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue Employee’s coverage under the Company’s health insurance plans in accordance with COBRA or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact), and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates), plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date, or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.8    Release. As a condition to receipt of any accelerated vesting or severance benefits under this Agreement, Employee (or, in the event of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) shall be required to provide the Company with an effective general release of any and all known and unknown claims against the Company and other specifically identified released parties, substantially in the form attached hereto as Exhibit A (the “Release”), within the applicable time period set forth in the specific form of Release provided to Employee by the Company, but in no event more than sixty (60) days following the Separation Date.

3.9    Payment of Severance Benefits; Section 409A.  In the event that Employee is entitled to any severance benefits pursuant to Sections 3.4, 3.5, or 3.7 of this Agreement (other than any accelerated vesting under Sections 3.4(b), 3.5, or 3.7(b)), such severance benefits shall be payable as follows: (1) (i) any payment of Base Salary pursuant to Sections 3.4(a) or 3.5 shall be made in the form of substantially equal installments for a period of one (1) year following the Separation Date, and (ii) any payment of Base Salary pursuant to Section 3.7(a) shall be made in the form of substantially equal installments for a period of two (2) years following the Separation Date, provided, however, that any payments delayed pending the effective date of the Release shall be paid in arrears no later than ten (10) days after such effective date; (2) any payment of bonus pursuant to Sections 3.4(c), 3.5, or 3.7(c) shall be made in the form of a lump sum within ten (10) days following the effective date of the Release; and (3) any restricted stock grants pursuant to Sections 3.4(d), 3.5, or 3.7(d) shall be made in full within thirty (30) days following the effective date of the Release; provided, however, that:

(a)    Payment of such amounts and any other amounts or benefits provided under this Agreement in connection with Employee’s termination of employment that constitute “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986 as amended (the “Code”), and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”), shall not commence in connection with Employee’s termination of employment unless and until Employee has also incurred a “separation from service” (as such term is defined in Treasury Regulations Section 1.409A-1(h) (“Separation from Service”)), unless the Company reasonably determines that such amounts and benefits may be provided to Employee without causing Employee to incur the adverse personal tax consequences under Section 409A; and

(b)    It is intended that (i) each installment of any amounts or benefits payable under this Agreement be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i)

(and each such installment is hereby designated as separate for such purpose); (ii) all payments of any such amounts or benefits satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9)(iii); and (iii) any such amounts or benefits consisting of premiums payable under COBRA also satisfy, to the greatest extent possible, the exemption from the application of Section 409A provided under Treasury Regulations Section 1.409A-1(b)(9)(v). However, if any such amounts or benefits constitute “deferred compensation” under Section 409A and Employee is a “specified employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i), then solely to the extent necessary to avoid the imposition of the adverse personal tax consequences under Section 409A, the timing of such benefit payments shall be delayed as follows, provided that the Release has become effective in accordance with its terms: on the earlier to occur of (a) the date that is six (6) months and one (1) day after Employee’s Separation from Service, and (b) the date of Employee’s death (such applicable date, the “Delayed Initial Payment Date”), the Company shall (1) pay Employee a lump sum amount equal to the sum of the benefit payments that Employee would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the benefits had not been delayed pursuant to this Section 3.9(b), and (2) commence paying the balance, if any, of the benefits in accordance with the applicable payment schedule.

3.10    Definitions. For purposes of this Agreement, the following definitions shall apply:

(a)    Disability. The term “Disability” shall mean a physical or mental disability that renders Employee unable to perform one or more of the essential functions of Employee’s job, as determined by two (2) licensed physicians selected jointly by the Board and Employee, for a period of 180 days during any 365-day period.

(b)    Cause. For purposes of this Agreement, “Cause” shall mean: (1) Employee’s conviction of any felony involving moral turpitude, fraud or dishonesty; (2) Employee’s persistent, willful and continual failure to substantially perform Employee’s material job duties under this Agreement (other than a failure resulting from Employee’s Disability); (3) Employee’s material and willful breach of any material statutory or fiduciary duty to the Company; or (4) Employee’s material and willful breach of this Agreement or the Proprietary Information Agreement.  In order to terminate this Agreement for Cause under subparts (2) through (4) in the preceding sentence, the Company must provide specific, detailed written notice to Employee of the occurrence of one or more of the foregoing circumstances within ninety (90) days following the initial occurrence of the circumstance, and if cured by Employee within thirty (30) days following receipt of notice, such event shall not provide Cause for termination by the Company; provided, however, that if the circumstance is part of an ongoing series of actions or behaviors that the Company considers to be Cause, the Company shall be entitled to provide such written notice to Employee within ninety (90) days following any occurrence of such action or behavior.  For purposes of this provision: (i) no act or failure to act, on the part of the Employee, shall be considered “willful” unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee’s action or omission was in the best interests of the Company; and (ii) no breach shall be considered “material” unless it has caused or is likely to cause material harm to the Company.

(c)    Good Reason. For purposes of this Agreement, “Good Reason” shall mean, without Employee’s express written consent, the occurrence of any of the following circumstances: (1) the assignment to Employee of any duties inconsistent with the position in the Company that Employee held immediately prior, or an adverse alteration in the nature or status of Employee’s responsibilities from those in effect immediately prior to such change; (2) a reduction by the Company in Employee’s annual base salary as in effect on the date hereof or as the same may be increased from time to time (provided, however, that a reduction in base salary imposed prior to a Change in Control in connection with an across-the-board reduction of base salaries of the Company’s Executive Vice Presidents, Senior Vice Presidents, and other similarly situated employees, shall not provide grounds for Good Reason); (3) the relocation of Employee’s offices to a location outside the San Francisco Bay Area, or requiring Employee to travel on Company business to an extent not substantially consistent with Employee’s previous business travel obligations; (4) the failure by the Company to pay Employee any portion of Employee’s current compensation except pursuant to an across-the-board compensation deferral similarly affecting all the employees of the Company (and all the employees of any entity whose actions resulted in a Change in Control, if such compensation deferral occurs after a Change in Control), or to pay Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company, in each case within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which Employee participates that is material to Employee’s

total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed previously; (6) the failure by the Company to continue to provide Employee with benefits substantially similar to those benefits provided to Employee under any of the Company’s directors and officers liability insurance, life insurance, medical, health and accident, or disability plans in which Employee was participating previously (provided, however, that a modification of any such benefits prior to a Change in Control which impacts the Company’s Executive Vice Presidents, Senior Vice Presidents, and other similarly situated employees, in the same or a substantially similar manner as Employee, shall not provide grounds for Good Reason), or the failure by the Company to provide Employee with substantially the same number of paid vacation days to which Employee is entitled in accordance with the Company’s normal vacation policy in effect at such time; or (7) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement. In order to terminate this Agreement for Good Reason, Employee must provide advance written notice to the Company of the occurrence of one or more of the foregoing circumstances; provided, however, that the Company shall not be required to provide any benefits under Section 3.4 or 3.7 if it is able to remedy and does remedy such circumstance within a period of thirty (30) days following such notice.

(d)    Change in Control. A “Change in Control” shall be deemed to have occurred if:

(i)    any Person (as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a Company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the Beneficial Owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(ii)    the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election, or nomination for election was previously so approved or recommended; or

(iii)    there is consummated a merger or consolidation of the Company with any other Company, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)    the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or there is consummated an agreement for the sale or disposition by the Company of

all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least seventy-five percent (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

3.11    No Offset. Employee shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, nor shall Employee’s entitlement to any severance benefit hereunder be offset by any earned income Employee may receive from employment or consulting with a third party after Employee’s employment with the Company.

SECTION 4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT.

Employee shall be required to continue compliance with Employee’s obligations under the Employee Proprietary Information and Inventions Agreement with the Company that Employee previously executed (the “Proprietary Information Agreement”), a copy of which is attached as Exhibit B.

SECTION 5. COMPANY POLICIES.

Employee shall be required to continue compliance with the Company’s employee policies and procedures established by the Company from time to time.

SECTION 6. ASSIGNABILITY.

This Agreement is binding upon, and inures to the benefit of, the parties and their respective heirs, executors, administrators, personal representatives, successors and assigns. The Company may assign its rights or delegate its duties under this Agreement at any time and from time to time. However, the parties acknowledge that the availability of Employee to perform services and the covenants provided by Employee hereunder are personal to Employee and have been a material consideration for the Company to enter into this Agreement. Accordingly, Employee may not assign any of Employee’s rights or delegate any of Employee’s duties under this Agreement, either voluntarily or by operation of law, without the prior written consent of the Company, which may be given or withheld by the Company in its sole and absolute discretion.

SECTION 7. NOTICES.

All notices and other communications under this Agreement shall be in writing and shall be given by facsimile, first-class mail (certified or registered with return receipt requested), or Federal Express overnight delivery, and shall be deemed to have been duly given three days after mailing or twenty-four (24) hours after transmission of a facsimile or Federal Express overnight delivery (if the receipt of the facsimile or Federal Express overnight delivery is confirmed) to the respective persons named below:

If to the Company:    Alexandria Real Estate Equities, Inc.

385 E. Colorado Boulevard, Suite 299

Pasadena, CA  91101

Telephone:  (626) 578-0777

If to Employee:        Stephen A. Richardson

c/o Alexandria Real Estate Equities, Inc.

1700 Owens Street, Suite 590

San Francisco, CA 94158

Any Party may change such Party’s address for notices by notice duly given pursuant hereto.

SECTION 8. ARBITRATION.

To ensure the timely and economical resolution of disputes that may arise in connection with Employee’s employment with the Company, Employee and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Employee’s employment, or the termination of Employee’s employment, including, but not limited to, statutory claims, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in Los Angeles, California, conducted by JAMS, Inc. (“JAMS”) under the then applicable JAMS rules. By agreeing to this arbitration procedure, both Employee and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The Company acknowledges that Employee will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that Employee or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required of Employee if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either Employee or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

SECTION 9. MISCELLANEOUS.

9.1    Entire Agreement. This Agreement, including its exhibits, contains the full, complete, and exclusive embodiment of the entire agreement of the parties with regard to the subject matter hereof and supersedes all other communications, representations, or agreements, oral or written, including, but not limited to, the Third Amended Agreement, and all negotiations and communications between the parties relating to this Agreement. Employee has not entered into this Agreement in reliance on any representations, written or oral, other than those contained herein. Any ambiguity in this document shall not be construed against either party as the drafter.

9.2    Amendment. This Agreement may not be amended or modified except by an instrument in writing duly executed by Employee and the Company’s Chief Executive Officer.

9.3    Applicable Law; Choice of Forum. This Agreement has been made and executed under, and will be construed and interpreted in accordance with, the laws of the State of California, without regard to conflict of laws principles.

9.4    Provisions Severable. If any provision of this Agreement is held to be invalid, illegal, or unenforceable, in whole or in part, such invalidity, illegality, or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the parties to the extent compatible with the applicable law as it shall then appear.

9.5    Non-Waiver of Rights and Breaches. Any waiver by a party of any breach of any provision of this Agreement shall be in writing and will not be deemed to be a waiver of any subsequent breach of that provision, or of any breach of any other provision of this Agreement. No failure or delay in exercising any right, power, or privilege granted to a party under any provision of this Agreement will be deemed a waiver of that or any other right, power, or privilege. No single or partial exercise of any right, power, or privilege granted to a party under any provision of this Agreement will preclude any other or further exercise of that or any other right, power, or privilege.

9.6    Headings. The headings of the Sections and Paragraphs of this Agreement are inserted for ease of reference only, and will have no effect in the construction or interpretation of this Agreement.

9.7    Counterparts. This Agreement and any amendment or supplement to this Agreement may be executed in two or more counterparts, each of which will constitute an original but all of which will together constitute

a single instrument. Transmission by facsimile or .pdf of an executed counterpart signature page hereof by a party hereto shall constitute due execution and delivery of this Agreement by such party.

9.8    Indemnification. In addition to any rights to indemnification to which Employee may be entitled under the Company’s Charter and By-Laws, the Company shall indemnify Employee at all times during and after Employee’s employment to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland, or any successor provision thereof and any other applicable state law, and shall pay Employee’s expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws.

IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amended and Restated Executive Employment Agreement to be duly executed on the dates identified below, effective as of the Effective Date stated above herein.

ALEXANDRIA REAL ESTATE EQUITIES, INC.     STEPHEN A. RICHARDSON

By: /s/ Joel S. Marcus        By: /s/ Stephen A. Richardson

Joel S. Marcus

Chief Executive Officer

Date: March 28, 2016        Date: March 28, 2016

EXHIBIT A

SEPARATION DATE RELEASE

(To be signed on or within 21 days after the Separation Date)

In exchange for the accelerated vesting of equity, severance benefits, and/or other consideration to be provided to me by Alexandria Real Estate Equities, Inc. (the “Company”), and as required by the Fourth Amended and Restated Executive Employment Agreement between the Company and me effective as of January 1, 2016 (the “Agreement”), I hereby provide the following Separation Date Release (the “Release”).

I hereby generally and completely release the Company and its parent and subsidiary entities, and its and their respective directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities, and obligations, both known and unknown, arising out of or in any way related to events, acts, conduct, or omissions occurring at any time prior to or at the time that I sign this Release (collectively, the “Released Claims”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing (including, but not limited to, any claims based on or arising from the Agreement); (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and Medical Leave Act, the California Family Rights Act, the California Labor Code (as amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, applicable law, or applicable directors and officers liability insurance; and (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I acknowledge and agree that I am hereby waiving my right to any monetary benefits in connection with any such claim, charge, or proceeding. I represent that I have no lawsuits, claims, or actions pending in my name, or on behalf of any other person or entity, against any of the Released Parties.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing that: (1) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose voluntarily to sign it earlier); (4) I have seven (7) days following the date I sign this Release to revoke it by providing written notice of revocation to the Company’s Chief Executive Officer; and (5) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it if I do not revoke it (the “Effective Date”).

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. I acknowledge that I have read and understand Section 1542 of the California Civil Code, which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to my release of claims herein, including, but not limited to, the release of unknown and unsuspected claims.

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I hereby represent that I have been paid all compensation owed, and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, pursuant to the federal Family and Medical Leave Act, the California Family Rights Act, any Company policy, or applicable law, and I have not suffered any on-the-job injury or illness for which I have not already filed a workers’ compensation claim.

I further agree: (1) not to disparage the Company, or any of the other Released Parties, in any manner likely to be harmful to its or their business, business reputation, or personal reputation (although I may respond accurately and fully to any question, inquiry, or request for information as required by legal process); (2) not to voluntarily (except in response to legal compulsion) assist any third party in bringing or pursuing any proposed or pending litigation, arbitration, administrative claim, or other formal proceeding against the Company, its parent, or subsidiary entities, affiliates, officers, directors, employees, or agents; and (3) to cooperate fully with the Company, by voluntarily (without legal compulsion) providing accurate and complete information, in connection with the Company’s actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters, arising from events, acts, or failures to act that occurred during the period of my employment by the Company.

By: /s/ Stephen A. Richardson

Stephen A. Richardson

Date: March 28, 2016

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EXHIBIT B

EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

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		Exhibit

EXHIBIT 10.3

AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”), made between Alexandria Real Estate Equities, Inc. (the “Company”) and Peter M. Moglia (“Employee”), amends and restates in its entirety the Executive Employment Agreement between the Company and Employee that was effective January 1, 2011 (the “2011 Agreement”). This Agreement is effective as of January 1, 2016 (the “Effective Date”).

RECITALS

WHEREAS, Employee was hired initially in the position of Director of Financial Planning and Analysis pursuant to an offer letter agreement dated March 2, 1998 (the “Offer Letter”);

WHEREAS, the Offer Letter was replaced by the 2011 Agreement;

WHEREAS, Employee is currently employed by the Company as its Chief Investment Officer; and

WHEREAS, the Company desires to continue to employ Employee as its Chief Investment Officer, and Employee is willing to continue such employment by the Company, on the amended and restated terms and subject to the conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the parties hereto agree as follows:

SECTION 1. POSITION; DUTIES; LOCATION.

Employee agrees to continue to be employed by and to continue to serve the Company as its Chief Investment Officer, and the Company agrees to employ and retain Employee in such capacity. In addition, Employee agrees to serve in such capacities for the Company’s subsidiaries, and in such additional or different capacities consistent with Employee’s current position as a senior executive of the Company, as may be determined by the Board of Directors of the Company (the “Board”). Employee shall devote such of Employee’s business time, energy, and skill to the affairs of the Company and its subsidiaries as shall be necessary to perform the duties of such positions. Notwithstanding the foregoing, and subject to any written policies of the Company, nothing in this Agreement shall preclude Employee from: (i) engaging in charitable and community affairs and not-for-profit activities, so long as they are consistent with Employee’s duties and responsibilities under this Agreement; (ii) managing Employee’s personal investments; (iii) serving on the boards of directors of non-profit companies; and (iv) serving on the boards of directors of other for-profit companies; provided, however, that, prior to accepting a position on any such for-profit board of directors, Employee shall obtain the approval of the Board (or, if applicable, the appropriate committee thereof), which shall be provided or withheld within the Board’s sole discretion; and provided, further, however, that Employee shall submit to the Board (or the appropriate committee thereof) a list of any for-profit boards of directors on which Employee is serving as of the Effective Date of this Agreement or thereafter. Employee shall continue to report to the Company’s Chief Executive Officer. Employee shall be based in the Company’s Pasadena office, except for required travel on the Company’s business. Notwithstanding the foregoing, the Company retains the sole discretion to change Employee’s title, reporting relationship, duties, and assigned office location (provided, however, that certain changes by the Company without Employee’s express written consent could give rise to grounds for a “Good Reason” resignation and receipt of compensation and benefits as provided in Sections 3.4 and 3.7 herein).

SECTION 2. COMPENSATION AND OTHER BENEFITS.

In consideration of Employee’s employment, and except as otherwise provided herein, Employee shall receive from the Company the compensation and benefits described in this Section 2. Employee authorizes the Company to deduct and withhold from all compensation to be paid to Employee any and all sums required to be deducted or withheld by the Company pursuant to the provisions of any federal, state, or local law, regulation, ruling, or ordinance, including, but not limited to, income tax withholding and payroll taxes.

2.1    Base Salary. Subject to the terms and conditions set forth herein, the Company agrees to pay Employee a base salary at the rate of four hundred ninety-five thousand dollars ($495,000) per year, less standard payroll deductions and withholdings, payable on the Company’s regular payroll schedule (the “Base Salary”). Employee’s Base Salary shall be reviewed no less frequently than annually by the Board (or such committee as may be appointed by the Board for such purpose) on or before September 30 each year. The Base Salary payable to Employee shall be increased as of January 1 each year, by action taken no later than September 30 of such year, and at such additional times as the Board or a committee of the Board may deem appropriate, to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive annual increase; provided, however, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the “Consumer Price Index, Los Angeles, California, All Items,” published by the U.S. Department of Labor (using January 1, 2011, as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of the Company hereunder, and, once established at an increased specified rate, Employee’s Base Salary shall not be reduced unless Employee otherwise agrees in writing.

2.2    Annual Bonus. Employee shall be eligible to receive a bonus for each calendar year of employment with the Company (each a “Bonus Year”) in an amount to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Employee’s performance and the performance of the Company during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Bonuses are not guaranteed, and the Board may determine that Employee has not earned a bonus for any Bonus Year. Any earned bonus shall be payable within 185 days after the end of the relevant Bonus Year or as soon thereafter as reasonably practicable, but in no event after the end of the year following the relevant Bonus Year; provided, however, that in the event Employee terminates employment with the Company for any reason other than a termination by the Company for Cause (as defined herein), after the end of the Bonus Year and prior to the date when such bonuses are paid by the Company to senior executives, then Employee shall receive the same cash bonus (not including any restricted stock grant shares) that would have been awarded to Employee in the absence of such termination, and it shall be paid to Employee at the same time that cash bonuses are paid by the Company to other senior executives.

2.3    Restricted Stock; Options. Employee shall be eligible for equity awards from time to time as shall be determined by the Compensation Committee of the Board (the “Compensation Committee”) in its sole discretion, and subject to such vesting, exercisability, and other provisions as the Compensation Committee may determine in its discretion, after reviewing the performance of both Employee and the Company. All equity awards shall be governed in all respects by the terms of the applicable stock option or restricted stock agreements, grant notice, and plan documents, except as specifically provided in Sections 3.4(b), 3.5, and 3.7(b) hereof. Notwithstanding anything in this Agreement to the contrary, upon a Change in Control (as defined herein), any outstanding equity awards held by Employee (whether in the form of stock options or shares of restricted stock) that were granted prior to the Effective Date shall become fully vested.

2.4    Vacation. Employee shall be entitled to accrue and use paid vacation in accordance with the terms of the Company’s vacation policy and practices, provided, however, that in no event will Employee’s vacation accrual rate be lower than three (3) weeks per year.

2.5    Other Benefits. Employee shall be eligible to participate in such of the Company’s benefit and deferred compensation plans as may be made available to executive officers of the Company, including, without limitation, the Company’s stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental plans, vision plans, sick pay, medical plans, personal catastrophe and accidental death insurance plans, financial planning, automobile arrangements, retirement plans, and

supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of the Company, such service shall be deemed to have commenced on April 14, 1998, which was Employee’s first date of employment with the Company.

2.6    Reimbursement for Expenses.  The Company shall reimburse Employee for all reasonable out-of-pocket business expenses (including, but not limited to, business entertainment expenses) incurred by Employee for the purpose of and in connection with the performance of Employee’s services pursuant to this Agreement. Employee shall be entitled to such reimbursement upon the presentation by Employee to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with the Company’s policies. In addition, Employee shall be entitled to reimbursement for: (i) dues and membership fees in professional organizations and industry associations in which Employee is currently a member or becomes a member; and (ii) appropriate industry seminars and mandatory continuing education. The amount of expenses eligible for reimbursement pursuant to this Section 2.6 during a calendar year shall not affect the amount of expenses eligible for reimbursement in any other calendar year. Without extending the time of payment that would apply in the absence of this sentence, the Company shall reimburse Employee for any expense eligible for reimbursement pursuant to this Section 2.6 in accordance with the Company’s applicable expense reimbursement policies and procedures and on or before the end of the calendar year following the calendar year in which the expense was incurred.

SECTION 3. TERMINATION; SEVERANCE.

3.1    Term and Termination. The term of this Agreement (“Term”) shall be the period commencing on the Effective Date and ending on the date that this Agreement is terminated by either party pursuant to the provisions of this Agreement. Employee is employed at-will, meaning that, subject to the terms and conditions set forth herein, either the Company or Employee may terminate Employee’s employment at any time, with or without Cause.

3.2    Compensation upon Termination. Upon the termination of Employee’s employment for any reason, the Company shall pay Employee all of Employee’s accrued and unused vacation and unpaid Base Salary earned through Employee’s last day of employment (the “Separation Date”). In addition, Employee will receive reimbursement of business expenses as provided under Section 2.6, and any bonus owed under Section 2.2 shall be paid in accordance with the terms of Section 2.2.

3.3    Termination for Cause. At any time, the Company shall be entitled to terminate this Agreement for Cause by written notice to Employee provided in accordance with Section 3.10(b), which notice shall specify the reason for and the effective date of such termination. In that event, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.4    Termination Without Cause or Resignation for Good Reason Not in Connection with a Change In Control. The Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, and provided that Employee is not eligible for severance benefits under Section 3.7 (Termination Without Cause or Resignation for Good Reason in Connection with a Change In Control), Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to one (1) year of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement (as defined herein)).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company

(whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in the amount of the cash bonus that Employee earned for the previous year, if any, or if such amount has not been determined at the time of termination, for the year prior to the previous year (provided, however, that if termination is on or after a Change in Control, and Section 3.7 does not apply, the amount shall in no event be lower than the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not to below zero) by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue coverage under the Company’s health insurance plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact) and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates), plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.5    Termination upon Death or Disability. The Agreement shall terminate immediately upon Employee’s death or Disability (as defined herein). In that event, the Company shall provide Employee (or, in the event of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) with the compensation set forth in Section 3.2, as well as the severance benefits set forth in Section 3.4.

3.6    Resignation. Employee shall be entitled to resign at any time upon written notice to the Company thirty (30) days prior to the effective date of such resignation, which shall be specified in Employee’s notice of resignation. Unless Employee’s resignation is for Good Reason, upon Employee’s resignation, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.7    Termination Without Cause or Resignation for Good Reason in Connection with a Change In Control. Upon or within two (2) years following a Change in Control, the Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to one and one-half (1.5) years of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in an amount equal to one and one-half (1.5) times the amount of the cash bonus that Employee earned for the previous year, if any, or, if such amount has not been determined at the time of termination, one and one-half (1.5) times the amount for the year prior to the previous year (provided, however, that the amount shall in no event be lower than one and one-half (1.5) times the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not to below zero) by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the

Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue Employee’s coverage under the Company’s health insurance plans in accordance with COBRA or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact), and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates), plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date, or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.8    Release. As a condition to receipt of any accelerated vesting or severance benefits under this Agreement, Employee (or, in the event of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) shall be required to provide the Company with an effective general release of any and all known and unknown claims against the Company and other specifically identified released parties, substantially in the form attached hereto as Exhibit A (the “Release”), within the applicable time period set forth in the specific form of Release provided to Employee by the Company, but in no event more than sixty (60) days following the Separation Date.

3.9    Payment of Severance Benefits; Section 409A.  In the event that Employee is entitled to any severance benefits pursuant to Sections 3.4, 3.5, or 3.7 of this Agreement (other than any accelerated vesting under Sections 3.4(b), 3.5, or 3.7(b)), such severance benefits shall be payable as follows: (1) (i) any payment of Base Salary pursuant to Sections 3.4(a) or 3.5 shall be made in the form of substantially equal installments for a period of one (1) year following the Separation Date, and (ii) any payment of Base Salary pursuant to Section 3.7(a) shall be made in the form of substantially equal installments for a period of one and one-half (1.5) years following the Separation Date, provided, however, that any payments delayed pending the effective date of the Release shall be paid in arrears no later than ten (10) days after such effective date; (2) any payment of bonus pursuant to Sections 3.4(c), 3.5, or 3.7(c), shall be made in the form of a lump sum within ten (10) days following the effective date of the Release; and (3) any restricted stock grants pursuant to Sections 3.4(d), 3.5, or 3.7(d) shall be made in full within thirty (30) days following the effective date of the Release; provided, however, that:

(a)    Payment of such amounts and any other amounts or benefits provided under this Agreement in connection with Employee’s termination of employment that constitute “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986 as amended (the “Code”), and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”), shall not commence in connection with Employee’s termination of employment unless and until Employee has also incurred a “separation from service” (as such term is defined in Treasury Regulations Section 1.409A-1(h) (“Separation from Service”)),

unless the Company reasonably determines that such amounts and benefits may be provided to Employee without causing Employee to incur the adverse personal tax consequences under Section 409A; and

(b)    It is intended that (i) each installment of any amounts or benefits payable under this Agreement be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i) (and each such installment is hereby designated as separate for such purpose); (ii) all payments of any such amounts or benefits satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9)(iii); and (iii) any such amounts or benefits consisting of premiums payable under COBRA also satisfy, to the greatest extent possible, the exemption from the application of Section 409A provided under Treasury Regulations Section 1.409A-1(b)(9)(v). However, if any such amounts or benefits constitute “deferred compensation” under Section 409A and Employee is a “specified employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i), then, solely to the extent necessary to avoid the imposition of the adverse personal tax consequences under Section 409A, the timing of such benefit payments shall be delayed as follows, provided that the Release has become effective in accordance with its terms: on the earlier to occur of (a) the date that is six (6) months and one (1) day after Employee’s Separation from Service and (b) the date of Employee’s death (such applicable date, the “Delayed Initial Payment Date”), the Company shall (1) pay Employee a lump sum amount equal to the sum of the benefit payments that Employee would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the benefits had not been delayed pursuant to this Section 3.9(b) and (2) commence paying the balance, if any, of the benefits in accordance with the applicable payment schedule.

3.10    Definitions. For purposes of this Agreement, the following definitions shall apply:

(a)    Disability. The term “Disability” shall mean a physical or mental disability that renders Employee unable to perform one or more of the essential functions of Employee’s job, as determined by two (2) licensed physicians selected jointly by the Board and Employee, for a period of 180 days during any 365 day period.

(b)    Cause. For purposes of this Agreement, “Cause” shall mean: (1) Employee’s conviction of any felony involving moral turpitude, fraud, or dishonesty; (2) Employee’s persistent, willful, and continual failure to substantially perform Employee’s material job duties under this Agreement (other than a failure resulting from Employee’s Disability); (3) Employee’s material and willful breach of any material statutory or fiduciary duty to the Company; or (4) Employee’s material and willful breach of this Agreement or the Proprietary Information Agreement.  In order to terminate this Agreement for Cause under subparts (2) through (4) in the preceding sentence, the Company must provide specific, detailed written notice to Employee of the occurrence of one or more of the foregoing circumstances within ninety (90) days following the initial occurrence of the circumstance, and if cured by Employee within thirty (30) days following receipt of notice, such event shall not provide Cause for termination by the Company; provided, however, that if the circumstance is part of an ongoing series of actions or behaviors that the Company considers to be Cause, the Company shall be entitled to provide such written notice to Employee within ninety (90) days following any occurrence of such action or behavior.  For purposes of this provision: (i) no act or failure to act, on the part of the Employee, shall be considered “willful” unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee’s action or omission was in the best interests of the Company; and (ii) no breach shall be considered “material” unless it has caused or is likely to cause material harm to the Company.

(c)    Good Reason. For purposes of this Agreement, “Good Reason” shall mean, without Employee’s express written consent, the occurrence of any of the following circumstances: (1) a material diminution in Employee’s duties from those in effect immediately prior, or a materially adverse alteration in the nature or status of Employee’s responsibilities from those in effect immediately prior to such change; (2) a material reduction by the Company in Employee’s annual base salary as in effect on the date hereof or as the same may be increased from time to time (provided, however, that a reduction in base salary imposed prior to a Change in Control in connection with an across-the-board reduction of base salaries of the Company’s Executive Vice Presidents, Senior Vice Presidents, and other similarly situated employees, shall not provide grounds for Good Reason); (3) the relocation of Employee’s offices to a location outside the greater Los Angeles/Pasadena metropolitan area, or requiring Employee to travel on Company business to an extent materially greater than Employee’s previous business travel obligations; (4) the failure by the Company to pay Employee any material portion of Employee’s current compensation except pursuant to an across-the-board compensation deferral similarly affecting all the employees of the Company (and all the employees

of any entity whose actions resulted in a Change in Control, if such compensation deferral occurs after a Change in Control), or to pay Employee any material portion of an installment of deferred compensation under any deferred compensation program of the Company, in each case within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which Employee participates that is material to Employee’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed previously; (6) a material reduction in the benefits provided to Employee under any of the Company’s directors and officers liability insurance, life insurance, medical, health and accident, or disability plans in which Employee was participating previously (provided, however, that a modification of any such benefits prior to a Change in Control which impacts the Company’s Executive Vice Presidents, Senior Vice Presidents, and other similarly situated employees, in the same or a substantially similar manner as Employee, shall not provide grounds for Good Reason), or the failure by the Company to provide Employee with substantially the same number of paid vacation days to which Employee is entitled in accordance with the Company’s normal vacation policy in effect at such time; or (7) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement. In order to terminate this Agreement for Good Reason, Employee must provide written notice to the Company of the occurrence of one or more of the foregoing circumstances within ninety (90) days following the initial occurrence of the circumstance; provided, however, that the Company shall not be required to provide any benefits under Section 3.4 or 3.7 if it is able to remedy and does remedy such circumstance within a period of thirty (30) days following such notice.

(d)    Change in Control. A “Change in Control” shall be deemed to have occurred if:

(i)    any Person (as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a Company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the Beneficial Owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(ii)    the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election, or nomination for election was previously so approved or recommended; or

(iii)    there is consummated a merger or consolidation of the Company with any other Company, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates

other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)    the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least seventy-five percent (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

3.11    No Offset. Employee shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, nor shall Employee’s entitlement to any severance benefit hereunder be offset by any earned income Employee may receive from employment or consulting with a third party after Employee’s employment with the Company.

SECTION 4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT.

Employee shall be required to continue compliance with Employee’s obligations under the Employee Proprietary Information and Inventions Agreement with the Company that Employee previously executed (the “Proprietary Information Agreement”), a copy of which is attached as Exhibit B.

SECTION 5. COMPANY POLICIES.

Employee shall be required to continue compliance with the Company’s employee policies and procedures established by the Company from time to time.

SECTION 6. ASSIGNABILITY.

This Agreement is binding upon, and inures to the benefit of, the parties and their respective heirs, executors, administrators, personal representatives, successors, and assigns. The Company may assign its rights or delegate its duties under this Agreement at any time and from time to time. However, the parties acknowledge that the availability of Employee to perform services and the covenants provided by Employee hereunder are personal to Employee and have been a material consideration for the Company to enter into this Agreement. Accordingly, Employee may not assign any of Employee’s rights or delegate any of Employee’s duties under this Agreement, either voluntarily or by operation of law, without the prior written consent of the Company, which may be given or withheld by the Company in its sole and absolute discretion.

SECTION 7. NOTICES.

All notices and other communications under this Agreement shall be in writing and shall be given by facsimile, first-class mail (certified or registered with return receipt requested), or Federal Express overnight delivery, and shall be deemed to have been duly given three days after mailing or twenty-four (24) hours after transmission of a facsimile or Federal Express overnight delivery (if the receipt of the facsimile or Federal Express overnight delivery is confirmed) to the respective persons named below:

If to the Company:    Alexandria Real Estate Equities, Inc.

385 E. Colorado Boulevard, Suite 299

Pasadena, CA  91101

Telephone:  (626) 578-0777

If to Employee:        Peter M. Moglia

c/o Alexandria Real Estate Equities, Inc.

385 East Colorado Boulevard, Suite 299

Pasadena, CA 91101

Any Party may change such Party’s address for notices by notice duly given pursuant hereto.

SECTION 8. ARBITRATION.

To ensure the timely and economical resolution of disputes that may arise in connection with Employee’s employment with the Company, Employee and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Employee’s employment, or the termination of Employee’s employment, including, but not limited to, statutory claims, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in Los Angeles, California, conducted by JAMS, Inc. (“JAMS”) under the then applicable JAMS rules. By agreeing to this arbitration procedure, both Employee and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The Company acknowledges that Employee will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that Employee or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required of Employee if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either Employee or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

SECTION 9. MISCELLANEOUS.

9.1    Entire Agreement. This Agreement, including its exhibits, contains the full, complete, and exclusive embodiment of the entire agreement of the parties with regard to the subject matter hereof and supersedes all other communications, representations, or agreements, oral or written, including, but not limited to, the Offer Letter, the 2011 Agreement, and all negotiations and communications between the parties relating to this Agreement. Employee has not entered into this Agreement in reliance on any representations, written or oral, other than those contained herein. Any ambiguity in this document shall not be construed against either party as the drafter.

9.2    Amendment. This Agreement may not be amended or modified except by an instrument in writing duly executed by Employee and the Company’s Chief Executive Officer.

9.3    Applicable Law; Choice of Forum. This Agreement has been made and executed under, and will be construed and interpreted in accordance with, the laws of the State of California, without regard to conflict of laws principles.

9.4    Provisions Severable. If any provision of this Agreement is held to be invalid, illegal, or unenforceable, in whole or in part, such invalidity, illegality, or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the parties to the extent compatible with the applicable law as it shall then appear.

9.5    Non-Waiver of Rights and Breaches. Any waiver by a party of any breach of any provision of this Agreement shall be in writing and will not be deemed to be a waiver of any subsequent breach of that provision, or of any breach of any other provision of this Agreement. No failure or delay in exercising any right, power, or privilege granted to a party under any provision of this Agreement will be deemed a waiver of that or any other right, power, or privilege. No single or partial exercise of any right, power, or privilege granted to a party under any provision of this Agreement will preclude any other or further exercise of that or any other right, power or privilege.

9.6    Headings. The headings of the Sections and Paragraphs of this Agreement are inserted for ease of reference only, and will have no effect in the construction or interpretation of this Agreement.

9.7    Counterparts. This Agreement and any amendment or supplement to this Agreement may be executed in two or more counterparts, each of which will constitute an original but all of which will together constitute

a single instrument. Transmission by facsimile or .pdf of an executed counterpart signature page hereof by a party hereto shall constitute due execution and delivery of this Agreement by such party.

9.8    Indemnification. In addition to any rights to indemnification to which Employee may be entitled under the Company’s Charter and By-Laws, the Company shall indemnify Employee at all times during and after Employee’s employment to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland, or any successor provision thereof and any other applicable state law, and shall pay Employee’s expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws.

IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Executive Employment Agreement to be duly executed on the dates identified below, effective as of the Effective Date stated above herein.

ALEXANDRIA REAL ESTATE EQUITIES, INC.     PETER M. MOGLIA

By: /s/ Joel S. Marcus        By: /s/ Peter M. Moglia

Joel S. Marcus

Chief Executive Officer

Date: March 28, 2016        Date: March 28, 2016

EXHIBIT A

SEPARATION DATE RELEASE

(To be signed on or within 21 days after the Separation Date)

In exchange for the accelerated vesting of equity, severance benefits, and/or other consideration to be provided to me by Alexandria Real Estate Equities, Inc. (the “Company”), and as required by the Amended and Stated Executive Employment Agreement between the Company and me effective as of January 1, 2016 (the “Agreement”), I hereby provide the following Separation Date Release (the “Release”).

I hereby generally and completely release the Company and its parent and subsidiary entities, and its and their respective directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities, and obligations, both known and unknown, arising out of or in any way related to events, acts, conduct, or omissions occurring at any time prior to or at the time that I sign this Release (collectively, the “Released Claims”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing (including, but not limited to, any claims based on or arising from the Agreement); (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and Medical Leave Act, the California Family Rights Act, the California Labor Code (as amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, applicable law, or applicable directors and officers liability insurance; and (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I acknowledge and agree that I am hereby waiving my right to any monetary benefits in connection with any such claim, charge, or proceeding. I represent that I have no lawsuits, claims, or actions pending in my name, or on behalf of any other person or entity, against any of the Released Parties.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing that: (1) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose voluntarily to sign it earlier); (4) I have seven (7) days following the date I sign this Release to revoke it by providing written notice of revocation to the Company’s Chief Executive Officer; and (5) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it if I do not revoke it (the “Effective Date”).

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. I acknowledge that I have read and understand Section 1542 of the California Civil Code, which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to my release of claims herein, including, but not limited to, the release of unknown and unsuspected claims.

A-

I hereby represent that I have been paid all compensation owed, and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, pursuant to the federal Family and Medical Leave Act, any Company policy, or applicable law, and I have not suffered any on-the-job injury or illness for which I have not already filed a workers’ compensation claim.

I further agree: (1) not to disparage the Company, or any of the other Released Parties, in any manner likely to be harmful to its or their business, business reputation, or personal reputation (although I may respond accurately and fully to any question, inquiry, or request for information as required by legal process); (2) not to voluntarily (except in response to legal compulsion) assist any third party in bringing or pursuing any proposed or pending litigation, arbitration, administrative claim, or other formal proceeding against the Company, its parent, or subsidiary entities, affiliates, officers, directors, employees, or agents; and (3) to cooperate fully with the Company, by voluntarily (without legal compulsion) providing accurate and complete information, in connection with the Company’s actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters, arising from events, acts, or failures to act that occurred during the period of my employment by the Company.

By: /s/ Peter M. Moglia

Peter M. Moglia

Date: March 28, 2016

A-

EXHIBIT B

EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

B-

		Exhibit

EXHIBIT 10.4

THIRD AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

This THIRD AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”), made between Alexandria Real Estate Equities, Inc. (the “Company”) and Thomas J. Andrews (“Employee”), amends and restates in its entirety the Second Amended and Restated Executive Employment Agreement between the Company and Employee that was executed by the parties in March 2011 with an effective date of January 1, 2011 (the “2011 Agreement”). This Agreement is effective as of January 1, 2016 (the “Effective Date”).

RECITALS

WHEREAS, Employee is currently employed by the Company as its Executive Vice President, Regional Market Director – Massachusetts, pursuant to the 2011 Agreement; and

WHEREAS, the Company desires to continue to employ Employee as its Executive Vice President/Regional Market Director – Massachusetts, and Employee is willing to continue such employment by the Company, on the amended and restated terms and subject to the conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the parties hereto agree as follows:

SECTION 1. POSITION; DUTIES; LOCATION.

Employee agrees to continue to be employed by and to serve the Company as its Executive Vice President/Regional Market Director – Massachusetts, and the Company agrees to employ and retain Employee in such capacity. In addition, Employee agrees to serve in such capacities for the Company’s subsidiaries, and in such additional or different capacities consistent with Employee’s current position as a senior executive of the Company, as may be determined by the Board of Directors of the Company (the “Board”). Employee shall devote such of Employee’s business time, energy, and skill to the affairs of the Company and its subsidiaries as shall be necessary to perform the duties of such positions. Notwithstanding the foregoing, and subject to any written policies of the Company, nothing in this Agreement shall preclude Employee from: (i) engaging in charitable and community affairs and not-for-profit activities, so long as they are consistent with Employee’s duties and responsibilities under this Agreement; (ii) managing Employee’s personal investments; (iii) serving on the boards of directors of non-profit companies; and (iv) serving on the boards of directors of other for-profit companies; provided, however, that, prior to accepting a position on any such for-profit board of directors, Employee shall obtain the approval of the Board (or, if applicable, the appropriate committee thereof), which shall be provided or withheld within the Board’s sole discretion; and provided, further, however, that Employee shall submit to the Board (or the appropriate committee thereof) a list of any for-profit boards of directors on which Employee is serving as of the Effective Date of this Agreement or thereafter. Employee shall continue to report to the Company’s Chief Executive Officer. Employee shall be based in the Company’s Worcester, Massachusetts, office, except for required travel on the Company’s business. Notwithstanding the foregoing, the Company retains the sole discretion to change Employee’s title, reporting relationship, duties, and assigned office location (provided, however, that certain changes by the Company without Employee’s express written consent could give rise to grounds for a “Good Reason” resignation and receipt of compensation and benefits as provided in Sections 3.4 and 3.7 herein).

SECTION 2. COMPENSATION AND OTHER BENEFITS.

In consideration of Employee’s employment, and except as otherwise provided herein, Employee shall receive from the Company the compensation and benefits described in this Section 2. Employee authorizes the Company to deduct and withhold from all compensation to be paid to Employee any and all sums required to be deducted or withheld

by the Company pursuant to the provisions of any federal, state, or local law, regulation, ruling, or ordinance, including, but not limited to, income tax withholding and payroll taxes.

2.1    Base Salary. Subject to the terms and conditions set forth herein, the Company agrees to pay Employee a base salary at the rate of four hundred ninety-five thousand dollars ($495,000) per year, less standard payroll deductions and withholdings, payable on the Company’s regular payroll schedule (the “Base Salary”). Employee’s Base Salary shall be reviewed no less frequently than annually by the Board (or such committee as may be appointed by the Board for such purpose) on or before September 30 each year. The Base Salary payable to Employee shall be increased as of January 1 each year, by action taken no later than September 30 of such year, and at such additional times as the Board or a committee of the Board may deem appropriate, to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive annual increase; provided, however, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the “Consumer Price Index, Boston, Massachusetts, All Items,” published by the U.S. Department of Labor (using January 1, 2006, as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of the Company hereunder, and, once established at an increased specified rate, Employee’s Base Salary shall not be reduced unless Employee otherwise agrees in writing.

2.2    Annual Bonus. Employee shall be eligible to receive a bonus for each calendar year of employment with the Company (each a “Bonus Year”) in an amount to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Employee’s performance and the performance of the Company during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Bonuses are not guaranteed, and the Board may determine that Employee has not earned a bonus for any Bonus Year. Any earned bonus shall be payable within 185 days after the end of the relevant Bonus Year or as soon thereafter as reasonably practicable, but in no event after the end of the year following the relevant Bonus Year; provided, however, that in the event Employee terminates employment with the Company for any reason other than a termination by the Company for Cause (as defined herein), after the end of the Bonus Year and prior to the date when such bonuses are paid by the Company to senior executives, then Employee shall receive the same cash bonus (not including any restricted stock grant shares) that would have been awarded to Employee in the absence of such termination, and it shall be paid to Employee at the same time that cash bonuses are paid by the Company to other senior executives.

2.3    Restricted Stock; Options. Employee shall be eligible for equity awards from time to time as shall be determined by the Compensation Committee of the Board (the “Compensation Committee”) in its sole discretion, and subject to such vesting, exercisability, and other provisions as the Compensation Committee may determine in its discretion, after reviewing the performance of both Employee and the Company. All equity awards shall be governed in all respects by the terms of the applicable stock option or restricted stock agreements, grant notice, and plan documents, except as specifically provided in Sections 3.4(b), 3.5, and 3.7(b) hereof. Notwithstanding anything in this Agreement to the contrary, upon a Change in Control (as defined herein), any outstanding equity awards held by Employee (whether in the form of stock options or shares of restricted stock) that were granted prior to the Effective Date shall become fully vested.

2.4    Vacation. Employee shall be entitled to accrue and use paid vacation in accordance with the terms of the Company’s vacation policy and practices, provided, however, that in no event will Employee’s vacation accrual rate be lower than three (3) weeks per year.

2.5    Other Benefits. Employee shall be eligible to participate in such of the Company’s benefit and deferred compensation plans as may be made available to executive officers of the Company, including, without limitation, the Company’s stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental plans, vision plans, sick pay, medical plans, personal catastrophe and accidental death insurance plans, financial planning, automobile arrangements, retirement plans, and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of the Company, such service shall be deemed to have commenced on June 15, 1999, which was Employee’s first date of employment with the Company.

2.6    Reimbursement for Expenses.  The Company shall reimburse Employee for all reasonable out-of-pocket business expenses (including, but not limited to, business entertainment expenses) incurred by Employee

for the purpose of and in connection with the performance of Employee’s services pursuant to this Agreement. Employee shall be entitled to such reimbursement upon the presentation by Employee to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with the Company’s policies. In addition, Employee shall be entitled to reimbursement for: (i) dues and membership fees in professional organizations and industry associations in which Employee is currently a member or becomes a member; and (ii) appropriate industry seminars and mandatory continuing education. The amount of expenses eligible for reimbursement pursuant to this Section 2.6 during a calendar year shall not affect the amount of expenses eligible for reimbursement in any other calendar year. Without extending the time of payment that would apply in the absence of this sentence, the Company shall reimburse Employee for any expense eligible for reimbursement pursuant to this Section 2.6 in accordance with the Company’s applicable expense reimbursement policies and procedures and on or before the end of the calendar year following the calendar year in which the expense was incurred.

SECTION 3. TERMINATION; SEVERANCE.

3.1    Term and Termination. The term of this Agreement (“Term”) shall be the period commencing on the Effective Date and ending on the date that this Agreement is terminated by either party pursuant to the provisions of this Agreement. Employee is employed at-will, meaning that, subject to the terms and conditions set forth herein, either the Company or Employee may terminate Employee’s employment at any time, with or without Cause.

3.2    Compensation upon Termination. Upon the termination of Employee’s employment for any reason, the Company shall pay Employee all of Employee’s accrued and unused vacation and unpaid Base Salary earned through Employee’s last day of employment (the “Separation Date”). In addition, Employee will receive reimbursement of business expenses as provided under Section 2.6, and any bonus owed under Section 2.2 shall be paid in accordance with the terms of Section 2.2.

3.3    Termination for Cause. At any time, the Company shall be entitled to terminate this Agreement for Cause by written notice to Employee provided in accordance with Section 3.10(b), which notice shall specify the reason for and the effective date of such termination. In that event, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.4    Termination Without Cause or Resignation for Good Reason Not in Connection with a Change In Control. The Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, and provided that Employee is not eligible for severance benefits under Section 3.7 (Termination Without Cause or Resignation for Good Reason in Connection with a Change In Control), Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to one (1) year of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement (as defined herein)).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in the amount of the cash bonus that Employee earned for the previous year, if any, or if such amount has not been determined at the time of termination, for the year prior to the previous year (provided, however, that if termination is on or after a Change in Control, and Section 3.7 does not apply, the amount shall in no event be

lower than the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not to below zero) by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue coverage under the Company’s health insurance plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact) and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates), plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.5    Termination upon Death or Disability. This Agreement shall terminate immediately upon Employee’s death or Disability (as defined herein). In that event, the Company shall provide Employee (or, in the event of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) with the compensation set forth in Section 3.2, as well as the severance benefits set forth in Section 3.4.

3.6    Resignation. Employee shall be entitled to resign at any time upon written notice to the Company thirty (30) days prior to the effective date of such resignation, which shall be specified in Employee’s notice of resignation. Unless Employee’s resignation is for Good Reason, upon Employee’s resignation, the Company shall pay Employee the compensation set forth in Section 3.2, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.

3.7    Termination Without Cause or Resignation for Good Reason in Connection with a Change In Control. Upon or within two (2) years following a Change in Control, the Company shall be entitled to terminate Employee’s employment without Cause immediately upon written notice to Employee, and Employee shall be entitled to terminate this Agreement for Good Reason in accordance with Section 3.10(c). In either event, Employee shall receive the following severance benefits:

(a)    Salary Continuation. The Company shall pay Employee severance in an amount equal to two (2) years of Base Salary, less standard payroll deductions and withholdings, and paid in accordance with Section 3.9. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that Employee materially breaches any of Employee’s continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement).

(b)    Accelerated Vesting. To the extent not previously accelerated pursuant to Section 2.3, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.

(c)    Bonus. The Company shall pay Employee a cash bonus for the year in which the Separation Date occurs in an amount equal to two (2) times the amount of the cash bonus that Employee earned for the previous year, if any, or, if such amount has not been determined at the time of termination, two (2) times the amount for the year prior to the previous year (provided, however, that the amount shall in no event be lower than two (2) times the highest actual cash bonus amount received by Employee for the two (2) calendar years preceding the calendar year in which the Change in Control occurs). For the avoidance of doubt, the calculation of such cash bonus shall not include any restricted stock grants, or shares of stock, or the value of such grants or stock, which may have been provided to Employee at any time.

(d)    Restricted Stock Grants.

(i)    Prior Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Prior Year Grant”) for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs (such year to be referred to as the “Prior Year”) in the amount that is the greater of the following: (A) any annual performance-based grants for Employee of restricted stock that may have already then been determined by the Compensation Committee for the Prior Year but which have not yet been made to Employee as of the Separation Date; and (B) the average of the amounts of any such grants that Employee received for the second, third, and fourth fiscal years prior to the fiscal year in which the Separation Date occurs. In the event that, as of the Separation Date, Employee has already received a restricted stock grant for the Prior Year (the “Actual Prior Year Grant”), then the Prior Year Grant calculated pursuant to the prior sentence shall be reduced (but not to below zero) by the number of shares previously received by the Employee pursuant to such Actual Prior Year Grant, including shares included in the Actual Prior Year Grant that may become vested as a result of the Employee’s termination of employment.

(ii)    Separation Year Stock Grant. The Company shall grant to Employee, fully vested, a restricted stock grant (the “Separation Year Grant”) for the Company’s fiscal year in which the Separation Date occurs (the “Separation Year”) in the amount that is calculated as follows: (A) the number of shares of the Prior Year Grant (calculated pursuant to Section 3.4(d)(i), but without any reduction to account for an Actual Prior Year Grant); multiplied by (B) a fraction with a numerator equal to the number of calendar days that Employee was employed by the Company during the Separation Year and a denominator equal to 365 (or 366, if the Separation Year is a calendar leap year).

(e)    Continued Health Benefits. If Employee timely elects to continue Employee’s coverage under the Company’s health insurance plans in accordance with COBRA or any analogous provisions of state law, the Company shall pay the applicable premiums for such continued coverage throughout the twelve (12)-month period following the Separation Date; provided, however, that (i) the Company shall not be required to make any such payments after such time as Employee becomes entitled to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such fact), and (ii) any applicable premiums that are paid by the Company shall not include any amounts payable by Employee under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Employee. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay Employee’s COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide Employee taxable monthly payments in an amount that is calculated as (A) the amount of the monthly COBRA premium that Employee would be required to pay to continue Employee’s group health coverage, including coverage for any covered dependents (which amount shall be based on the premium for the first month of COBRA coverage immediately following the month in which Employee’s employment with the Company terminates), plus (B) an additional amount equal to the tax withholdings taken from the monthly payment (so that the after-tax value of the payment is equal to the monthly COBRA premium amount under (A)), and such monthly payments shall be made through the earlier of (i) twelve (12) months from the employment termination date, or (ii) such date as Employee becomes eligible to receive similar health insurance coverage from another employer or recipient of Employee’s services (and Employee shall promptly notify the Company of any such eligibility).

3.8    Release. As a condition to receipt of any accelerated vesting or severance benefits under this Agreement, Employee (or, in the event of Employee’s death, Employee’s designated beneficiaries or, if Employee has none, Employee’s estate) shall be required to provide the Company with an effective general release of any and all known and unknown claims against the Company and other specifically identified released parties, substantially in the form attached hereto as Exhibit A (the “Release”), within the applicable time period set forth in the specific form of Release provided to Employee by the Company, but in no event more than sixty (60) days following the Separation Date.

3.9    Payment of Severance Benefits; Section 409A.  In the event that Employee is entitled to any severance benefits pursuant to Sections 3.4, 3.5, or 3.7 of this Agreement (other than any accelerated vesting under Sections 3.4(b), 3.5, or 3.7(b)), such severance benefits shall be payable as follows: (1) (i) any payment of Base Salary pursuant to Sections 3.4(a) or 3.5 shall be made in the form of substantially equal installments for a period of one (1) year following the Separation Date, and (ii) any payment of Base Salary pursuant to Section 3.7(a) shall be made in the form of substantially equal installments for a period of two (2) years following the Separation Date, provided, however, that any payments delayed pending the effective date of the Release shall be paid in arrears no later than ten (10) days after such effective date; (2) any payment of bonus pursuant to Sections 3.4(c), 3.5, or 3.7(c) shall be made in the form of a lump sum within ten (10) days following the effective date of the Release; and (3) any restricted stock grants pursuant to Sections 3.4(d), 3.5, or 3.7(d) shall be made in full within thirty (30) days following the effective date of the Release; provided, however, that:

(a)    Payment of such amounts and any other amounts or benefits provided under this Agreement in connection with Employee’s termination of employment that constitute “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986 as amended (the “Code”),and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”), shall not commence in connection with Employee’s termination of employment unless and until Employee has also incurred a “separation from service” (as such term is defined in Treasury Regulations Section 1.409A-1(h) (“Separation from Service”)), unless the Company reasonably determines that such amounts and benefits may be provided to Employee without causing Employee to incur the adverse personal tax consequences under Section 409A; and

(b)    It is intended that (i) each installment of any amounts or benefits payable under this Agreement be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i) (and each such installment is hereby designated as separate for such purpose); (ii) all payments of any such amounts or benefits satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under

Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9)(iii); and (iii) any such amounts or benefits consisting of premiums payable under COBRA also satisfy, to the greatest extent possible, the exemption from the application of Section 409A provided under Treasury Regulations Section 1.409A-1(b)(9)(v). However, if any such amounts or benefits constitute “deferred compensation” under Section 409A and Employee is a “specified employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i), then, solely to the extent necessary to avoid the imposition of the adverse personal tax consequences under Section 409A, the timing of such benefit payments shall be delayed as follows, provided that the Release has become effective in accordance with its terms: on the earlier to occur of (a) the date that is six (6) months and one (1) day after Employee’s Separation from Service, and (b) the date of Employee’s death (such applicable date, the “Delayed Initial Payment Date”), the Company shall (1) pay Employee a lump sum amount equal to the sum of the benefit payments that Employee would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the benefits had not been delayed pursuant to this Section 3.9(b), and (2) commence paying the balance, if any, of the benefits in accordance with the applicable payment schedule.

3.10    Definitions. For purposes of this Agreement, the following definitions shall apply:

(a)    Disability. The term “Disability” shall mean a physical or mental disability that renders Employee unable to perform one or more of the essential functions of Employee’s job, as determined by two (2) licensed physicians selected jointly by the Board and Employee, for a period of 180 days during any 365-day period.

(b)    Cause. For purposes of this Agreement, “Cause” shall mean: (1) Employee’s conviction of any felony involving moral turpitude, fraud, or dishonesty; (2) Employee’s persistent, willful, and continual failure to substantially perform Employee’s material job duties under this Agreement (other than a failure resulting from Employee’s Disability); (3) Employee’s material and willful breach of any material statutory or fiduciary duty to the Company; or (4) Employee’s material and willful breach of this Agreement or the Proprietary Information Agreement.  In order to terminate this Agreement for Cause under subparts (2) through (4) in the preceding sentence, the Company must provide specific, detailed written notice to Employee of the occurrence of one or more of the foregoing circumstances within ninety (90) days following the initial occurrence of the circumstance, and if cured by Employee within thirty (30) days following receipt of notice, such event shall not provide Cause for termination by the Company; provided, however, that if the circumstance is part of an ongoing series of actions or behaviors that the Company considers to be Cause, the Company shall be entitled to provide such written notice to Employee within ninety (90) days following any occurrence of such action or behavior.  For purposes of this provision: (i) no act or failure to act, on the part of the Employee, shall be considered “willful” unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee’s action or omission was in the best interests of the Company; and (ii) no breach shall be considered “material” unless it has caused or is likely to cause material harm to the Company.

(c)    Good Reason. For purposes of this Agreement, “Good Reason” shall mean, without Employee’s express written consent, the occurrence of any of the following circumstances: (1) a material diminution in Employee’s duties from those in effect immediately prior, or a materially adverse alteration in the nature or status of Employee’s responsibilities from those in effect immediately prior to such change; (2) a material reduction by the Company in Employee’s annual base salary as in effect on the date hereof or as the same may be increased from time to time (provided, however, that a reduction in base salary imposed prior to a Change in Control in connection with an across-the-board reduction of base salaries of the Company’s other Executive Vice Presidents, Senior Vice Presidents, and other similarly situated employees, shall not provide grounds for Good Reason); (3) the relocation of Employee’s offices to a location outside the greater Worcester/Cambridge/Boston metropolitan area, or requiring Employee to travel on Company business to an extent materially greater than Employee’s previous business travel obligations; (4) the failure by the Company to pay Employee any material portion of Employee’s current compensation except pursuant to an across-the-board compensation deferral similarly affecting all the employees of the Company (and all the employees of any entity whose actions resulted in a Change in Control, if such compensation deferral occurs after a Change in Control), or to pay Employee any material portion of an installment of deferred compensation under any deferred compensation program of the Company, in each case within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which Employee participates that is material to Employee’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee’s

(d)    Change in Control. A “Change in Control” shall be deemed to have occurred if:

(i)    any Person (as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a Company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the Beneficial Owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(ii)    the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election, or nomination for election was previously so approved or recommended; or

(iii)    there is consummated a merger or consolidation of the Company with any other Company, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or(B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)    the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially

all of the Company’s assets to an entity, at least seventy-five percent (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

3.11    No Offset. Employee shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, nor shall Employee’s entitlement to any severance benefit hereunder be offset by any earned income Employee may receive from employment or consulting with a third party after Employee’s employment with the Company.

SECTION 4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT.

Employee shall be required to continue compliance with Employee’s obligations under the Employee Proprietary Information and Inventions Agreement with the Company that Employee previously executed (the “Proprietary Information Agreement”), a copy of which is attached as Exhibit B.

SECTION 5. COMPANY POLICIES.

Employee shall be required to continue compliance with the Company’s employee policies and procedures established by the Company from time to time.

SECTION 6. ASSIGNABILITY.

This Agreement is binding upon, and inures to the benefit of, the parties and their respective heirs, executors, administrators, personal representatives, successors, and assigns. The Company may assign its rights or delegate its duties under this Agreement at any time and from time to time. However, the parties acknowledge that the availability of Employee to perform services and the covenants provided by Employee hereunder are personal to Employee and have been a material consideration for the Company to enter into this Agreement. Accordingly, Employee may not assign any of Employee’s rights or delegate any of Employee’s duties under this Agreement, either voluntarily or by operation of law, without the prior written consent of the Company, which may be given or withheld by the Company in its sole and absolute discretion.

SECTION 7. NOTICES.

All notices and other communications under this Agreement shall be in writing and shall be given by facsimile, first-class mail (certified or registered with return receipt requested), or Federal Express overnight delivery, and shall be deemed to have been duly given three days after mailing or twenty-four (24) hours after transmission of a facsimile or Federal Express overnight delivery (if the receipt of the facsimile or Federal Express overnight delivery is confirmed) to the respective persons named below:

If to the Company:    Alexandria Real Estate Equities, Inc.

385 E. Colorado Boulevard, Suite 299

Pasadena, CA  91101

Telephone:  (626) 578-0777

If to Employee:        Thomas J. Andrews

c/o Alexandria Real Estate Equities, Inc.

One Innovation Drive

Worcester, MA 01605

Any Party may change such Party’s address for notices by notice duly given pursuant hereto.

SECTION 8. ARBITRATION.

To ensure the timely and economical resolution of disputes that may arise in connection with Employee’s employment with the Company, Employee and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Employee’s employment, or the termination of Employee’s employment, including, but not limited to, statutory claims, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in Los Angeles, California, conducted by JAMS, Inc. (“JAMS”) under the then applicable JAMS rules. By agreeing to this arbitration procedure, both Employee and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The Company acknowledges that Employee will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that Employee or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required of Employee if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either Employee or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

SECTION 9. MISCELLANEOUS.

9.1    Entire Agreement. This Agreement, including its exhibits, contains the full, complete, and exclusive embodiment of the entire agreement of the parties with regard to the subject matter hereof and supersedes all other communications, representations, or agreements, oral or written, including, but not limited, to the 2011 Agreement, and all negotiations and communications between the parties relating to this Agreement. Employee has not entered into this Agreement in reliance on any representations, written or oral, other than those contained herein. Any ambiguity in this document shall not be construed against either party as the drafter.

9.2    Amendment. This Agreement may not be amended or modified except by an instrument in writing duly executed by Employee and the Company’s Chief Executive Officer.

9.3    Applicable Law; Choice of Forum. This Agreement has been made and executed under, and will be construed and interpreted in accordance with, the laws of the State of California, without regard to conflict of laws principles.

9.4    Provisions Severable. If any provision of this Agreement is held to be invalid, illegal, or unenforceable, in whole or in part, such invalidity, illegality, or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the parties to the extent compatible with the applicable law as it shall then appear.

9.5    Non-Waiver of Rights and Breaches. Any waiver by a party of any breach of any provision of this Agreement shall be in writing and will not be deemed to be a waiver of any subsequent breach of that provision, or of any breach of any other provision of this Agreement. No failure or delay in exercising any right, power, or privilege granted to a party under any provision of this Agreement will be deemed a waiver of that or any other right, power, or privilege. No single or partial exercise of any right, power, or privilege granted to a party under any provision of this Agreement will preclude any other or further exercise of that or any other right, power, or privilege.

9.6    Headings. The headings of the Sections and Paragraphs of this Agreement are inserted for ease of reference only, and will have no effect in the construction or interpretation of this Agreement.

9.7    Counterparts. This Agreement and any amendment or supplement to this Agreement may be executed in two or more counterparts, each of which will constitute an original but all of which will together constitute

a single instrument. Transmission by facsimile or .pdf of an executed counterpart signature page hereof by a party hereto shall constitute due execution and delivery of this Agreement by such party.

9.8    Indemnification. In addition to any rights to indemnification to which Employee may be entitled under the Company’s Charter and By-Laws, the Company shall indemnify Employee at all times during and after Employee’s employment to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland, or any successor provision thereof and any other applicable state law, and shall pay Employee’s expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws.

IN WITNESS WHEREOF, the parties hereto have caused this Third Amended and Restated Executive Employment Agreement to be duly executed on the dates identified below, effective as of the Effective Date stated above herein.

ALEXANDRIA REAL ESTATE EQUITIES, INC.        THOMAS J. ANDREWS

By: /s/ Joel S. Marcus        By: /s/ Thomas J. Andrews

Joel S. Marcus

Chief Executive Officer

Date: March 28, 2016        Date: March 28, 2016

EXHIBIT A

SEPARATION DATE RELEASE

(To be signed on or within 21 days after the Separation Date)

In exchange for the accelerated vesting of equity, severance benefits, and/or other consideration to be provided to me by Alexandria Real Estate Equities, Inc. (the “Company”), and as required by the Third Amended and Restated Executive Employment Agreement between the Company and me effective as of January 1, 2016 (the “Agreement”), I hereby provide the following Separation Date Release (the “Release”).

I hereby generally and completely release the Company and its parent and subsidiary entities, and its and their respective directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities, and obligations, both known and unknown, arising out of or in any way related to events, acts, conduct, or omissions occurring at any time prior to or at the time that I sign this Release (collectively, the “Released Claims”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing (including, but not limited to, any claims based on or arising from the Agreement); (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and Medical Leave Act, the California Family Rights Act, the California Labor Code (as amended), the California Fair Employment and Housing Act (as amended), and the Massachusetts Fair Employment Practices Act. Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, applicable law, or applicable directors and officers liability insurance; and (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the Massachusetts Commission Against Discrimination, or any other government agency, except that I acknowledge and agree that I am hereby waiving my right to any monetary benefits in connection with any such claim, charge, or proceeding. I represent that I have no lawsuits, claims, or actions pending in my name, or on behalf of any other person or entity, against any of the Released Parties.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing that: (1) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose voluntarily to sign it earlier); (4) I have seven (7) days following the date I sign this Release to revoke it by providing written notice of revocation to the Company’s Chief Executive Officer; and (5) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it if I do not revoke it (the “Effective Date”).

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. I acknowledge that I have read and understand Section 1542 of the California Civil Code, which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under

A-

that section and any law or legal principle of similar effect in any jurisdiction with respect to my release of claims herein, including, but not limited to, the release of unknown and unsuspected claims.

I hereby represent that I have been paid all compensation owed, and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, pursuant to the federal Family and Medical Leave Act, any Company policy, or applicable law, and I have not suffered any on-the-job injury or illness for which I have not already filed a workers’ compensation claim.

I further agree: (1) not to disparage the Company, or any of the other Released Parties, in any manner likely to be harmful to its or their business, business reputation, or personal reputation (although I may respond accurately and fully to any question, inquiry, or request for information as required by legal process); (2) not to voluntarily (except in response to legal compulsion) assist any third party in bringing or pursuing any proposed or pending litigation, arbitration, administrative claim, or other formal proceeding against the Company, its parent, or subsidiary entities, affiliates, officers, directors, employees, or agents; and (3) to cooperate fully with the Company, by voluntarily (without legal compulsion) providing accurate and complete information, in connection with the Company’s actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters, arising from events, acts, or failures to act that occurred during the period of my employment by the Company.

By: /s/ Thomas J. Andrews

Thomas J. Andrews

Date: March 28, 2016

A-

EXHIBIT B

EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

A-

		Exhibit

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)

Three Months Ended March 31, 2016 Years Ended December 31,
2015 2014 2013 2012 2011
Income from continuing operations before noncontrolling interests ^(a)^ $ 10,363 $ 144,506 $ 104,991 $ 139,349 $ 96,712 $ 117,316
Add: interest expense 24,855 105,813 79,299 67,952 69,184 63,373
Subtract: noncontrolling interests in income of subsidiaries that have not incurred fixed charges (4,030 ) (1,897 ) (4,856 ) (954 ) (955 ) (1,323 )
Earnings available for fixed charges ^(b)^ $ 31,188 $ 248,422 $ 179,434 $ 206,347 $ 164,941 $ 179,366
Fixed charges:
Interest incurred $ 36,954 $ 142,353 $ 126,287 $ 128,038 $ 131,424 $ 120,610
Preferred stock dividends 5,907 24,986 25,698 25,885 27,328 28,357
Preferred stock redemption charge 3,046 — 1,989 — 5,978 —
Total combined fixed charges and preferred stock dividends $ 45,907 $ 167,339 $ 153,974 $ 153,923 $ 164,730 $ 148,967
Consolidated ratio of earnings to fixed charges 0.84 ^(c)^ 1.75 ^(d)^ 1.42 ^(e)^ 1.61 1.26 ^(f)^ 1.49
Consolidated ratio of earnings to combined fixed charges and preferred stock dividends 0.68 ^(c)^ 1.48 ^(d)^ 1.17 ^(e)^ 1.34 1.00 ^(f)^ 1.20
(a) Includes gains on sales of land parcels that are not attributable to discontinued operations and excludes equity in earnings from unconsolidated joint ventures.
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(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).
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(c) Ratios for the three months ended March 31, 2016, include the effect of a preferred stock redemption charge of $3.0 million and impairment of real estate of $29.0 million. Excluding the impact of the preferred stock redemption charge and the impairment of real estate, the consolidated ratio of earnings to fixed charges and the consolidated ratio of earnings to combined fixed charges and preferred stock dividends for the three months ended March 31, 2016, were 1.63 and 1.38, respectively.
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(d) Ratios for the year ended December 31, 2015, include the effect of losses on early extinguishment of debt of $189 thousand and impairment of real estate of $23.3 million. Excluding the impact of losses on early extinguishment of debt and the impairment of real estate, 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, 2015, were 1.91 and 1.62, respectively.
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(e) 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 the 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.
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(f) 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 the 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.
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		Exhibit

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: May 3, 2016

/s/ Joel S. Marcus
Joel S. Marcus
Chief Executive Officer 
		Exhibit

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: May 3, 2016

/s/ Dean A. Shigenaga
Dean A. Shigenaga
Chief Financial Officer 
		Exhibit

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 Quarterly Report on Form 10-Q of Alexandria Real Estate Equities, Inc. for the quarter ended March 31, 2016, 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: May 3, 2016

/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 Quarterly Report on Form 10-Q of Alexandria Real Estate Equities, Inc. for the quarter ended March 31, 2016, 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: May 3, 2016

/s/ Dean A. Shigenaga
Dean A. Shigenaga
Chief Financial Officer 
		Exhibit

EXHIBIT 99.1

FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the material U.S. federal income tax considerations relevant to our qualification as a REIT and the ownership and disposition of shares of our common stock. Supplemental U.S. federal income tax considerations relevant to holders of the securities offered by this prospectus may be provided in the prospectus supplement that relates to those securities. This discussion is based on current provisions of the Internal Revenue Service Code (the “Code”), current and proposed Treasury regulations, administrative decisions and rulings of the Internal Revenue Service (“IRS”) and court decisions as of the date hereof, all of which are subject to change (possibly with retroactive effect) and all of which are subject to differing interpretation. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or to persons subject to special treatment under the federal income tax laws. In particular, this discussion deals only with stockholders that hold our common stock as capital assets within the meaning of the Code. Except as expressly provided below, this discussion does not address the tax treatment of special classes of stockholders, including, without limitation, banks, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, persons holding our stock as part of a hedge, straddle, or other risk reduction, constructive sale, or conversion transaction, U.S. expatriates, persons subject to the alternative minimum tax, foreign corporations, foreign estates or trusts, and persons who are not citizens or residents of the United States. This discussion may not be applicable to stockholders who acquired our stock pursuant to the exercise of options or warrants or otherwise as compensation. Furthermore, this discussion does not address any state, local, foreign, or non-income tax considerations.

If a partnership (including, for this purpose, any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our common stock, the U.S. federal income tax consequences to a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A stockholder that is a partnership, and the partners in such partnership, should consult their own tax advisors regarding the U.S. federal income tax considerations of an investment in our shares.

THE DISCUSSION SET FORTH BELOW IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR STOCKHOLDER. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION AS WELL AS APPLICABLE STATE, LOCAL, FOREIGN, AND NON-INCOME TAX LAWS.

Taxation of Our Company

General

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 1996, and intend to continue to operate in a manner consistent with such election and all rules with which a REIT must comply. Although we believe we are organized and operate in such a manner, we cannot assure you we qualify or will continue to qualify as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify. If we fail to qualify as a REIT (and we do not qualify for relief under certain provisions of the Code), we will be subject to federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate rates. In addition, unless entitled to relief under certain statutory provisions, we will be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. The additional tax would significantly reduce the cash flow available for distributions to stockholders. In addition, we would not be obligated to make distributions to stockholders.

On November 3, 2015, we received from Morrison & Foerster LLP its opinion to the effect that, commencing with our taxable year ended December 31, 2004, we were organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our proposed method of operation would enable us to continue to meet the requirements for qualification and taxation as a REIT under the Code. It must be emphasized that this opinion was based and conditioned upon certain assumptions and representations made by us as to factual matters (including representations concerning, among other things, our business and properties, the amount of rents attributable to personal property, and other items regarding our ability to meet the various requirements for qualification as a REIT). The opinion was expressed as of its date, which was November 3, 2015, and Morrison & Foerster LLP has undertaken no obligation to advise holders of our securities of any subsequent change in the matters stated, represented, or assumed or any subsequent change in the applicable law. Moreover, qualification and taxation as a REIT depends on our having met and continuing to meet, through actual annual operating results, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Code discussed below, the results of which will not be reviewed by Morrison & Foerster LLP.

In any year in which we qualify as a REIT, we will not be subject to federal income tax on that portion of our REIT taxable income or capital gain that is distributed to our stockholders, thereby substantially eliminating the “double taxation” of such income or gain (i.e., the taxation of such income or gain at the corporate level and the taxation of any distribution of such income or gain at the stockholder level).

Notwithstanding our qualification as a REIT, we may be subject to tax under the following circumstances:

• We will be subject to tax at normal corporate tax rates upon any undistributed taxable income or capital gain. If we elect to retain and pay income tax on our net long-term capital gain, stockholders would be required to include their proportionate share of such undistributed gain in income but would receive a credit for their share of any taxes paid on such gain by us. A stockholder would increase his tax basis in his or her shares by the amount of income included less his or her credit or refund. Any undistributed net long-term capital gain would be designated in a notice mailed to stockholders. Through December 31, 2015, we have never made such a designation.
• If we fail to satisfy either the 75% or the 95% gross income test discussed below, but nonetheless maintain our qualification as a REIT because certain other requirements are met, we will be subject to a 100% tax on (i) the greater of the amount by which we fail to satisfy either the 75% or the 95% gross income test (ii) multiplied by a fraction intended to reflect our profitability.
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• If we fail to satisfy the 5% asset test or the 10% vote and value test (and we do not qualify for a de minimis safe harbor) or we fail to satisfy the other asset tests, each of which are discussed below, and nonetheless maintain our qualification as a REIT because certain other requirements are met, we will be subject to a tax equal to the greater of $50,000 or an amount determined by multiplying the highest corporate tax rate by the net income generated by the assets that caused the failure for the period during which we failed to satisfy the tests.
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• If we fail to satisfy one or more REIT requirements other than the gross income or asset tests, but nonetheless maintain our qualification as a REIT because certain other requirements are met, we will be subject to a penalty of $50,000 for each such failure.
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• We will be subject to a tax of 100% on net income from any “prohibited transaction,” as described below.
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• We will be subject to tax at the highest corporate tax rate on net income from the sale or other disposition of certain foreclosure properties held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property.
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• If we acquire any asset from a “C” corporation in a carry-over basis transaction and we subsequently recognize gain on the disposition of such asset during the five-year period beginning on the date of acquisition, such gain will be subject to tax at the highest regular corporate tax rate to the extent of any built-in gain. Built-in gain means the excess of (i) the fair market value of the asset over (ii) the adjusted basis in such asset on the date of acquisition.
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• We will be subject to a tax of 100% on the amount of any rents from real property, deductions, excess interest or services income that would be reapportioned between us and any of our “taxable REIT subsidiaries” in order to more clearly reflect the income of such subsidiaries. A taxable REIT subsidiary is any corporation (or an entity treated as a corporation under the Code) for which a joint election has been made by a REIT and such corporation to treat such corporation as a taxable REIT subsidiary with respect to such REIT.
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• If we fail to distribute during each calendar year at least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year, other than capital gains we elect to retain and pay tax on and (iii) any undistributed taxable income from prior years, we will be subject to a 4% nondeductible excise tax on the excess of such sum over the amounts actually distributed. To the extent we elect to retain and pay income tax on our net long-term capital gain, such retained amounts will be treated as having been distributed for purposes of the 4% excise tax.
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• We may also be subject to the corporate “alternative minimum tax” as well as tax in various situations and on some types of transactions not presently contemplated.
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We will use the calendar year both for federal income tax purposes and for financial reporting purposes. The requirements for our qualification as a REIT and certain additional matters are discussed in greater detail in the subsections that follow.

Share Ownership Test

Our shares must be held by a minimum of 100 persons for at least 335 days in each taxable year of 12 months, or a proportionate number of days in any shorter taxable year. In addition, at all times during the second half of each taxable year, no more than 50% in value of our shares may be owned, directly or indirectly, including via application of constructive ownership rules, by five or fewer individuals, including certain tax-exempt entities. Any shares held by a qualified domestic pension or other retirement trust will be treated as held directly by its beneficiaries in proportion to their actuarial interest in such trust. If we comply with applicable Treasury regulations for ascertaining our actual ownership and did not know, or exercising reasonable diligence would not have reason to know, that more than 50% in value of our outstanding shares were held, actually or constructively, by five or fewer individuals, then we will be treated as meeting this share ownership requirement.

To ensure compliance with the 50% share ownership test, we have placed restrictions on the transfer of our shares to prevent concentration of ownership. Moreover, to evidence compliance with these requirements, under applicable Treasury regulations, we must maintain records that disclose the actual ownership of our outstanding shares. Such regulations impose penalties for failing to do so. In fulfilling our obligation to maintain records, we must and will demand written statements each year from the record holders of designated percentages of our shares disclosing the actual owners of such shares as prescribed by Treasury regulations. A list of those persons failing or refusing to comply with such demand must be maintained as a part of our records. A stockholder failing or refusing to comply with our written demand must submit with his or her tax returns a similar statement disclosing the actual ownership of our shares and other information. In addition, our charter provides restrictions regarding the transfer of shares that are intended to assist us in continuing to satisfy the share ownership requirements. We intend to enforce the percentage limitations on ownership of shares of our stock to assure that our qualification as a REIT will not be compromised.

Asset Tests

At the close of each quarter of our taxable year, we must satisfy certain tests relating to the nature of our assets:

• At least 75% of the value of our total assets must be represented by interests in real property, interests in mortgages on real property, shares in other REITs, cash (generally including the functional currency of any of our “qualified business units” when used in the normal course of activities that produce income qualifying under the 95% or 75% gross income test discussed below), cash items, government securities, qualified temporary investments, and, for taxable years beginning after December 31, 2015, interests in mortgages secured by both real property and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property, personal property leased in connection with real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease, and debt instruments issued by “publicly offered REITs.”
• No more than 25% of the value of our total assets may be represented by securities other than those in the 75% asset class described above.
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• Excluding securities of a qualified REIT subsidiary, another REIT, a taxable REIT subsidiary, or other securities that qualify for the 75% asset test, we are prohibited from owning securities representing more than 10% of either the vote or the value of the outstanding securities of any one issuer, and no more than 5% of the value of our total assets may be represented by securities of any one issuer. For purposes of the 10% value test, certain additional securities are excluded, including certain “straight debt,” loans to individuals or estates, and obligations to pay rents from real property.
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• No more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets may be represented by securities of one or more taxable REIT subsidiaries.
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• For taxable years beginning after December 31, 2015, not more than 25% of the value of our total assets may be represented by debt instruments of “publicly offered REITs” to the extent those debt instruments would not be real estate assets but for the inclusion of debt instruments of “publicly offered REITs” in the meaning of real estate assets for taxable years beginning after December 31, 2015.
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For purposes of the 10% value test described above:

• our interest as a partner in a partnership is not considered a security;
• any debt instrument issued by a partnership (other than “straight debt” or other excluded securities) will not be considered a security issued by the partnership if at least 75% of the partnership’s gross income is derived from sources that would qualify for the 75% REIT gross income test; and
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• any debt instrument issued by a partnership (other than “straight debt” or other excluded securities) will not be considered a security issued by the partnership to the extent of our interest as a partner in the partnership.
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We currently hold, and expect to hold in the future, securities of various issuers. While we do not anticipate our securities holdings would result in a violation of the REIT asset tests, fluctuations in value and other circumstances existing from time to time may increase our risk under the asset tests.

If we meet the asset tests at the close of a quarter, we will not lose our status as a REIT if we fail to satisfy such tests at the end of a subsequent quarter solely by reason of changes in the relative values of our assets (including changes caused solely by the change in the foreign currency exchange rate used to value a foreign asset). If we would fail these tests, in whole or in part, due to an acquisition of securities or other property during a quarter, we can avoid such failure by disposing of sufficient non-qualifying assets within 30 days after the close of such quarter. If we fail the 5% or 10% asset tests at the end of any quarter and do not cure within 30 days, we may still cure such failure or otherwise satisfy the requirements of such tests within six months after the last day of the quarter in which our identification of the failure occurred, provided the non-qualifying assets do not exceed the lesser of 1% of the total value of our assets at the end of the relevant quarter or $10,000,000. If our failure of the 5% and 10% asset tests exceeds this amount or we fail any of the other asset tests and do not cure within 30 days, we may avoid disqualification as a REIT provided (i) the failure was due to reasonable cause and not willful neglect, (ii) we file certain reports with the IRS, (iii) we take steps to satisfy the requirements of the applicable asset test within six months after the last day of the quarter in which our identification of the failure

occurred, including the disposition of sufficient assets to meet the asset tests, and (iv) we pay a tax equal to the greater of $50,000 or the product of (x) the net income generated by the non-qualifying assets during the period in which we failed to satisfy the relevant asset test and (y) the highest U.S. federal income tax rate then applicable to U.S. corporations.

Gross Income Tests

Two separate percentage tests related to the sources of our gross income must be satisfied each taxable year.

First, at least 75% of our gross income (excluding gross income from “prohibited transactions,” discussed below) for the taxable year generally must be:

• “rents from real property”;
• interest on obligations secured by mortgages on, or interests in, real property, and, for taxable years after December 31, 2015, interest on debt secured by mortgages on both real and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property;
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• gains from the disposition of interests in real estate assets (excluding gain from the sale of a nonqualified “publicly offered REIT” debt instrument) and real estate mortgages, other than gain from property held primarily for sale to customers (“dealer property”);
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• distributions on shares in other REITs, as well as gain from the sale of such shares;
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• abatements and refunds of real property taxes;
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• income from the operation, and gain from the sale, of “foreclosure property”;
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• commitment fees received for agreeing to make loans secured by mortgages on real property or to purchase or lease real property; and
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• certain qualified temporary investment income.
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Second, in general, at least 95% of our gross income (excluding gross income from “prohibited transactions,” discussed below) for the taxable year must be derived from the above-described qualifying income and dividends, interest, or gains from the sale or other disposition of stock or other securities that are not dealer property.

Rents we receive will qualify as “rents from real property” only under the following conditions:

• Rent will not qualify if we, or a direct or constructive owner of 10% or more of our shares, directly or constructively own 10% or more of a tenant unless the tenant is a taxable REIT subsidiary of ours and certain other requirements are met with respect to the real property being rented.
• If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as rent from real property. The determination of whether an item of property constitutes real property or personal property under the REIT provisions of the Code is subject to both legal and factual considerations and, as such, is subject to differing interpretations. Our accountants and counsel have advised us with respect to applicable considerations underlying such determination. After consulting with our accountants and counsel and considering such advice, we have reviewed our properties and have determined that rents attributable to personal property do not exceed 15% of the total rent with respect to any particular lease. Due to the specialized nature of our properties, however, there can be no assurance that the IRS will not assert the rent attributable to personal property with respect to a particular lease is greater than 15% of the total rent with respect to such lease. If the IRS were successful, and the amount of such non-qualifying income, together with other non-qualifying income, exceeds 5% of our taxable income, we may fail to qualify as a REIT.
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• An amount received or accrued will not qualify as rent from real property if it is based in whole or in part on the income or profits of any person, although an amount received or accrued generally will not be excluded from “rents from real property” solely by reason of being based on a fixed percentage or percentages of receipts or sales.
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• For rents received to qualify as rents from real property, generally we must not furnish or render services to tenants, other than through a taxable REIT subsidiary or an “independent contractor” from whom we derive no income, unless such services are “usually or customarily rendered” in connection with the rental of property and are not otherwise considered “rendered to the occupant.” A REIT is permitted to render a de minimis amount of impermissible services and still treat amounts otherwise received with respect to a property as rents from real property. The amount received or accrued by the REIT during the taxable year for impermissible services with respect to a property may not exceed 1% of all amounts received or accrued by the REIT directly or indirectly from the property. For this purpose, the amount received for any service or management operation will be deemed not less than 150% of the direct cost of the REIT in furnishing or rendering the service.
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Foreign currency gain with respect to income that otherwise qualifies for purposes of the 75% or 95% income test will not constitute gross income for purposes of the 75% or 95% income test, respectively.

Income from a hedging transaction made (i) to hedge indebtedness incurred or to be incurred by us to acquire or own real estate assets, (ii) primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would qualify under the 75% or 95% income tests (or any property which generates such income or gain), or (iii) for taxable years beginning after December 31, 2015, to hedge the income or loss from prior hedging transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished or disposed of, in each case generally will not constitute gross income for purposes of the 75% and 95% gross income tests. Any such hedging transactions must be properly identified.

For purposes of determining whether we comply with the 75% and 95% gross income tests, gross income also does not include income from “prohibited transactions.” A “prohibited transaction” is a sale of property held primarily for sale to customers in the ordinary course of a trade or business, excluding foreclosure property, unless we hold such property for at least two years and other requirements relating to the number of properties sold in a year, their tax bases, and the cost of improvements made to the property are satisfied. See “Taxation of Our Company – General” for certain tax consequences of prohibited transactions.

Even if we fail to satisfy one or both of the 75% and 95% gross income tests for any taxable year, we may still qualify as a REIT for such year if we are entitled to relief under certain relief provisions of the Code. These relief provisions generally will be available if:

• following our identification of the failure, we file a schedule with a description of each item of gross income that caused the failure in accordance with regulations prescribed by the Treasury; and
• our failure to comply was due to reasonable cause and not due to willful neglect.
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If these relief provisions apply, we will nonetheless be subject to a special tax upon the greater of the amount by which we fail either the 75% or 95% gross income test for that year. See “Taxation of Our Company – General” for a discussion of such tax.

Annual Distribution Requirements

In order to qualify as a REIT, we are required to make distributions, other than capital gain dividends, to our stockholders each year in an amount at least equal to (i) 90% of our REIT taxable income, computed without regard to the dividends paid deduction and REIT net capital gain, plus (ii) 90% of our net income after tax, if any, from foreclosure property, minus (iii) the sum of certain items of excess non-cash income. Such distributions must be made in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year and if paid on or before the first regular dividend payment after such declaration.

To the extent we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be subject to tax on the undistributed amount at regular capital gains or ordinary corporate tax rates, as the case may be. We may elect to retain, rather than distribute, our net capital gain and pay tax on such gain. If we make this election, our stockholders would include in their income as long-term capital gains their proportionate share of the undistributed net capital gains as designated by us, and we would have to pay the tax on such gains within 30 days of the close of our taxable year. Each of our stockholders would be deemed to have paid such stockholder’s share of the tax paid by us on such gains, which tax would be credited or refunded to the stockholder. Each stockholder would increase his tax basis in our shares by the amount of income to the holder resulting from the designation less the holder’s credit or refund for the tax paid by us.

We intend to make timely distributions sufficient to satisfy the annual distribution requirements. It is possible that we may not have sufficient cash or other liquid assets to meet the 90% distribution requirement, due to timing differences between the actual receipt of income and actual payment of expenses on the one hand, and the inclusion of such income and deduction of such expenses in computing our REIT taxable income on the other hand. To avoid any problem with the 90% distribution requirement, we will closely monitor the relationship between our REIT taxable income and cash flow and, if necessary, borrow funds or distribute property in-kind to satisfy the distribution requirements. In addition, from time to time, we may determine to declare dividends payable in cash or stock at the election of each stockholder, subject to a limit on the aggregate cash that could be paid. Any such dividend would be distributed in a manner intended to be treated in full as a taxable dividend that counts toward satisfaction of our annual distribution requirements. While the IRS privately has ruled a distribution of stock pursuant to such an election will be considered a taxable dividend if certain requirements are met, no assurances can be provided that the IRS will not assert a contrary position and that such a distribution will be considered a taxable dividend that qualifies for the dividends paid deduction.

In order for distributions to count toward the annual distribution requirement applicable to REITs and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends” unless such distributions are made in taxable years beginning after December 31, 2014 and we qualify as a “publicly offered REIT.” Generally, a distribution is not a preferential dividend if the distribution is (1) pro rata among all outstanding shares within a particular class, and (2) in accordance with the preferences among different classes of stock as set forth in our organizational documents. We believe that we are, and expect we will continue to be, a “publicly offered REIT.”

If we fail to meet the 90% distribution requirement as a result of an adjustment to our tax return by the IRS, or if we determine that we have failed to meet the 90% distribution requirement in a prior taxable year, we may retroactively cure the failure by paying a “deficiency dividend,” plus applicable penalties and interest, within a specified period.

If we fail to distribute during each calendar year at least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year, other than capital gains we elect to retain and pay tax on, and (iii) any undistributed taxable income from prior years, we would be subject to a 4% nondeductible excise tax on the excess of such sum over the amounts actually distributed. To the extent we elect to retain and pay income tax on our long-term capital gain, such retained amounts will be treated as having been distributed for purposes of the 4% excise tax.

Absence of Earnings and Profits from Non-REIT Years

In order to qualify as a REIT, we must not have accumulated earnings and profits attributable to any non-REIT years. A REIT has until the close of its first taxable year in which it has non-REIT earnings and profits to distribute any such accumulated earnings and profits. Unless the “deficiency dividend” procedures described above apply and we comply with those procedures, failure to distribute such accumulated earnings and profits would result in our disqualification as a REIT. We believe that we had no accumulated earnings and profits as of December 31, 1995.

Tax Aspects of Our Investments in Partnerships and Qualified REIT Subsidiaries

Certain of our investments are held through partnerships or entities treated as partnerships for federal income tax purposes. In general, partnerships are “pass-through” entities that are not subject to federal income tax. Rather, partners are allocated their proportionate share of the items of income, gain, loss, deduction, and credit of the partnership and are subject to tax thereon without regard to whether the partners receive a distribution from the partnership. We will include our proportionate share of the foregoing partnership items for purposes of the various REIT gross income tests and in the computation of our REIT taxable income, and we will include our proportionate share of the assets held by each partnership for purposes of the REIT asset tests.

Certain of our investments are held through wholly owned subsidiaries that are treated as “qualified REIT subsidiaries.” Generally, a qualified REIT subsidiary is a corporation, other than a taxable REIT subsidiary, all of the capital stock of which is owned by the REIT. If a REIT owns a subsidiary that is a qualified REIT subsidiary, the separate existence of that subsidiary is disregarded for federal income tax purposes. All assets, liabilities, and items of income, deduction and credit of the qualified REIT subsidiary are treated as assets, liabilities, and items of income, deduction and credit of the REIT itself. Our qualified REIT subsidiaries are not subject to federal income tax, and our ownership of the stock of a qualified REIT subsidiary will not violate the restrictions on ownership of securities, as described above under “Taxation of Our Company – Asset Tests.”

Investments in Taxable REIT Subsidiaries

We and any entity treated as a corporation for federal income tax purposes in which we own an interest may jointly elect to treat such entity as a “taxable REIT subsidiary.” In addition, if a taxable REIT subsidiary of ours owns, directly or indirectly, securities representing 35% or more of the vote or value of an entity treated as a corporation for federal income tax purposes, that subsidiary also will be treated as a taxable REIT subsidiary of ours. Taxable REIT subsidiaries are permitted to engage in certain types of activities that cannot be performed directly by REITs without jeopardizing their REIT status.

Certain of our subsidiaries have elected to be treated as taxable REIT subsidiaries of ours, and additional elections may be made in the future. As taxable REIT subsidiaries, these entities will pay federal and state income taxes at the full applicable corporate tax rates on their income prior to the payment of any dividends to us. Our taxable REIT subsidiaries will attempt to minimize the amount of such taxes, but there can be no assurance whether or the extent to which measures taken to minimize taxes will be successful. To the extent a taxable REIT subsidiary is required to pay federal, state, or local income taxes, the cash available for distribution by such taxable REIT subsidiary to its stockholders will be reduced accordingly. Taxable REIT subsidiaries are subject to limitations on the deductibility of payments made to the associated REIT, which could materially increase the taxable income of the taxable REIT subsidiary. Further, we will be subject to a tax of 100% on the amount of any rents from real property, deductions, excess interest, or services income that is reapportioned between us and any of our taxable REIT subsidiaries to more clearly reflect the income of the taxable REIT subsidiary.

Failure to Qualify

In the event we fail to satisfy one or more requirements for qualification as a REIT, other than the REIT asset and gross income tests, each of which is subject to the cure provisions described above, we will retain our REIT qualification if (i) the violation is due to reasonable cause and not willful neglect and (ii) we pay a penalty of $50,000 for each failure to satisfy the provision.

If we fail to qualify for taxation as a REIT in any taxable year and relief provisions do not apply, we will be subject to tax, including applicable alternative minimum taxes, on our taxable income at regular corporate tax rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us, nor generally will they be required to be made under the Code. In such event, to the extent of current and accumulated earnings and profits, all distributions to our stockholders will be taxable as dividends and, subject to the limitations set forth in the Code, corporate distributees may be eligible for the dividends-received deduction. Unless entitled to relief under specific statutory provisions, we also will be disqualified from re-electing taxation as a REIT for the four taxable years following the year during which qualification was lost.

Taxation of Our Stockholders

For purposes of the following discussions, a “domestic stockholder” generally refers to (i) a citizen or resident of the United States; (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or of a political subdivision of the United States; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. A “foreign stockholder” generally refers to a person that is not a domestic stockholder.

If a partnership or an entity treated as a partnership for federal income tax purposes holds our stock, the federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our common stock, you should consult your own tax advisor regarding the consequences of the ownership and disposition of shares of our stock by the partnership.

Taxation of Taxable Domestic Stockholders

As long as we qualify as a REIT, distributions made to our taxable domestic stockholders out of current or accumulated earnings and profits, and not designated as capital gain dividends, will be taken into account by them as ordinary dividends and will not be eligible for the dividends-received deduction for corporations. Generally our ordinary dividends will be taxable to our domestic stockholders as ordinary income. However, such dividends will be taxable to individuals at the rate applicable to long-term capital gains to the extent such dividends are attributable to dividends received by us from non-REIT corporations (e.g., taxable REIT subsidiaries) or are attributable to income upon which we have paid corporate income tax (e.g., to the extent we distribute less than 100% of our taxable income). We do not expect a significant portion of our ordinary dividends to be eligible for taxation at long-term capital gain rates.

We may designate portions of our distributions as capital gain dividends. Alternatively, we may elect to retain and pay income taxes on capital gains rather than distribute them, in which case stockholders include their proportionate share of such undistributed gain in income, receive a credit for their share of the taxes paid by us, and increase their basis in their shares by the amount of income included less the credit or refund. Distributions designated as capital gain dividends and retained net capital gain will be taxed as long-term capital gains to the extent they do not exceed our actual net capital gain for the taxable year, without regard to the period for which a stockholder has held its shares. For taxable years beginning after December 31, 2015, dividends designated as capital gain dividends may not exceed our dividends paid for the taxable year, including dividends paid the following year that are treated as paid in the current year. Corporate stockholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. In addition, net capital gains attributable to the sale by us of depreciable real property held for more than 12 months are taxable to individuals at a 25% maximum federal income tax rate to the extent of previously claimed real property depreciation.

To the extent we make distributions in excess of current and accumulated earnings and profits, these distributions are treated as a return of capital to the stockholder, reducing the tax basis of a stockholder’s shares by the amount of such distribution, with distributions in excess of the stockholder’s tax basis taxable as capital gains.

Any dividend declared by us in October, November, or December of any year and payable to a stockholder of record on a specific date in any such month may be treated as both paid by us and received by the stockholder on December 31 of such year, provided the dividend is actually paid by us during January of the following calendar year. Stockholders may not include in their individual income tax returns any of our net operating losses or capital losses.

A stockholder will realize capital gain or loss upon the sale or other taxable disposition of our stock equal to the difference between the sum of the fair market value of any property and cash received in such disposition and the stockholder’s adjusted tax basis. Such gain or loss will be long-term capital gain or loss if the stockholder has held its shares for more than one year. Capital losses generally are available only to offset capital gains of the stockholder except in the case of individuals, who may offset up to $3,000 of ordinary income each year. In general, any loss upon a sale or exchange of shares by a stockholder who has held such shares

for six months or less, after applying certain holding period rules, will be treated as a long-term capital loss to the extent of distributions from us required to be treated by such stockholder as long-term capital gains.

See “Taxation of Our Stockholders – Tax Rates Applicable to Individual Stockholders” below for a discussion of applicable capital gains rates. Stockholders should consult their own tax advisors with respect to the taxation of capital gains and capital gain dividends and with regard to state, local, and foreign taxes on capital gains and other income.

Distributions by us and gains from the sale or other disposition of our stock will not be treated as passive activity income. As a result, stockholders will not be able to apply any “passive losses” against this income or gain. Dividends from us (to the extent they do not constitute a return of capital) generally will be treated as investment income for purposes of the investment interest limitation. Net capital gain from the disposition of our stock or capital gain dividends generally will be excluded from investment income unless the stockholder elects to have the gain taxed at ordinary income rates.

Taxation of Foreign Stockholders

As background to this discussion, under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), a “United States real property interest” (“USRPI”) generally refers to interests in U.S. real property and shares of corporations at least 50% of whose assets consist of such interests. However, shares of certain “domestically controlled qualified investment entities” are excluded from USRPI treatment. We will qualify as a domestically controlled qualified investment entity so long as we qualify as a REIT and less than 50% in value of our shares are held by foreign stockholders. We currently anticipate that we will qualify as a domestically controlled qualified investment entity, although no assurance can be given that we will continue to qualify at all times.

Distributions to foreign stockholders out of our current and accumulated earnings and profits and not attributable to capital gains generally will be a dividend subject to U.S. withholding tax at a rate of 30% unless (i) an applicable tax treaty reduces such rate or (ii) such dividend is effectively connected to a U.S. trade or business conducted by such stockholder. Dividends effectively connected to a U.S. trade or business will be subject to federal income tax in the same manner and at the same rates applicable to domestic stockholders and, with respect to corporate foreign stockholders, may be subject to a 30% branch profits tax. We plan to withhold at the 30% rate unless (i) the foreign stockholder files an IRS Form W-8BEN or, in the case of a foreign entity stockholder, an IRS Form W-8BEN-E with us evidencing the application of a lower treaty rate or (ii) the foreign stockholder files an IRS Form W-8ECI with us claiming the distribution is effectively connected.

To the extent distributions not attributable to capital gains exceed current and accumulated earnings and profits, such distributions would not be subject to federal income taxation. If we cannot determine at the time we make a distribution whether or not the distribution will exceed our current and accumulated earnings and profits, we normally will withhold tax on the entire amount of any distribution at the same rate as we would withhold on a dividend. However, a stockholder may obtain a refund of amounts that we withhold if we later determine that a distribution in fact exceeded our current and accumulated earnings and profits.

Under FIRPTA, distributions attributable to capital gains from the sale or exchange by us of USRPIs are treated as income effectively connected to a U.S. trade or business, are subject to federal income taxation in the same manner and at the same rates applicable to domestic stockholders, and, with respect to corporate foreign stockholders, may be subject to a 30% branch profits tax. However, these distributions will not be subject to tax under FIRPTA, and will instead be taxed in the same manner as distributions described above, if:

• the distribution is made with respect to a class of shares regularly traded on an established securities market in the United States; and
• the foreign stockholder does not own more than 10% of such class at any time during the year within which the distribution is received.
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Unless you are a “qualified shareholder” or a “qualified foreign pension fund” (both as defined below), we are required by applicable Treasury regulations to withhold 35% of any distribution to a foreign stockholder owning more than 10% of the relevant class of shares that could be designated by us as a capital gain dividend. Any amount so withheld is creditable against the foreign stockholder’s FIRPTA tax liability.

In addition, distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements (“qualified shareholders”) are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to “qualified foreign pension funds” or entities, all of the interests of which are held by “qualified foreign pension funds,” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Distributions attributable to capital gains from the sale or exchange of non-USRPIs are not subject to federal income taxation.

Gains from the sale or exchange of our stock by a foreign stockholder will not be subject to federal income taxation, provided we qualify as a domestically controlled qualified investment entity or the stockholder does not own more than 10% of the class of stock sold. For purposes of determining whether a REIT is a “domestically controlled qualified investment entity,” a person who at all

applicable times holds less than 5% of a class of stock that is “regularly traded” is treated as a U.S. person unless the REIT has actual knowledge that such person is not a U.S. person.

In addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. An actual or deemed disposition of our capital stock by such shareholders may also be treated as a dividend. Furthermore, dispositions of our capital stock by “qualified foreign pension funds” or entities, all of the interests of which are held by “qualified foreign pension funds,” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Distributions and gains otherwise not subject to taxation under the foregoing rules may be subject to tax to the extent such distributions or gains were effectively connected to the conduct of a foreign stockholder’s U.S. trade or business or were made to a nonresident alien individual present in the United States for 183 days or more during the taxable year.

Common stock owned or treated as owned by an individual who is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of death will be includible in the individual’s gross estate for U.S. federal estate tax purposes unless an applicable estate tax treaty provides otherwise.

THE FEDERAL INCOME TAXATION OF FOREIGN STOCKHOLDERS IS A HIGHLY COMPLEX MATTER THAT MAY BE AFFECTED BY MANY OTHER CONSIDERATIONS. ACCORDINGLY, FOREIGN STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE INCOME AND WITHHOLDING TAX CONSIDERATIONS WITH RESPECT TO THEIR INVESTMENT IN US.

Taxation of Tax-Exempt Stockholders

While generally exempt from federal income taxation, tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, are subject to tax on their unrelated business taxable income (“UBTI”). The IRS has issued a revenue ruling in which it held that amounts distributed by a REIT to a tax-exempt employees’ pension trust do not constitute UBTI. Subject to the following paragraph, based upon the ruling, the analysis in the ruling and the statutory framework of the Code, distributions by us to a stockholder that is a tax-exempt entity also should not constitute UBTI, provided the tax-exempt entity has not financed the acquisition of its shares with “acquisition indebtedness” (within the meaning of the Code), the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity and, consistent with our present intent, we do not hold a residual interest in a real estate mortgage investment conduit.

Certain social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from taxation under special provisions of the federal income tax laws are subject to different UBTI rules, which generally will require them to characterize distributions received from us as UBTI. Furthermore, if any pension or other retirement trust that qualifies under Section 401(a) of the Code holds more than 10% by value of the interests in a “pension-held REIT” at any time during a taxable year, a portion of the dividends paid to the qualified pension trust by such REIT may constitute UBTI. For these purposes, a “pension-held REIT” is defined as a REIT that would not have qualified as a REIT but for the provisions of the Code that look through such a qualified pension trust in determining ownership of stock of the REIT and at least one qualified pension trust holds more than 25% by value of the interests of such REIT or one or more qualified pension trusts, each owning more than a 10% interest by value in the REIT, hold in the aggregate more than 50% by value of the interests in such REIT. We do not believe that we are, and we do not expect to become, a pension-held REIT.

Tax Rates Applicable to Individual Stockholders

Long-term capital gains (i.e., capital gains with respect to assets held for more than one year) and “qualified dividends” received by an individual generally are subject to federal income tax at a maximum rate of 20%. Short-term capital gains (i.e., capital gains with respect to assets held for one year or less) generally are subject to federal income tax at ordinary income rates. Because we are not generally subject to federal income tax on the portion of our REIT taxable income or capital gains distributed to our stockholders, our dividends generally are not eligible for the 20% maximum tax rate on qualified dividends. As a result, our ordinary dividends generally are taxed at the higher tax rates applicable to ordinary income. However, the 20% maximum tax rate for long-term capital gains and qualified dividends generally applies to:

• your long-term capital gains, if any, recognized on the disposition of our shares;
• our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation, in which case such distributions are subject to a 25% tax rate to such extent);
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• our dividends attributable to dividends received by us from non-REIT corporations, such as taxable REIT subsidiaries; and
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• our dividends to the extent attributable to income upon which we have paid corporate income tax (e.g., to the extent that we distribute less than 100% of our taxable income).
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Information Reporting and Backup Withholding

We will report to our domestic stockholders and to the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any, with respect to such distributions. Under the backup withholding rules, a domestic stockholder may be subject to backup withholding at applicable rates on distributions paid unless the stockholder (i) is a corporation or is otherwise specifically exempt from backup withholding and, when required, demonstrates this fact or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and complies with applicable requirements of the backup withholding rules. A stockholder that does not provide us with his or her correct taxpayer identification number may also be subject to penalties imposed by the IRS.

Payments of dividends or of proceeds from the disposition of stock made to a foreign stockholder may be subject to information reporting and backup withholding unless such holder establishes an exemption, for example, by properly certifying its foreign status on an IRS Form W-8BEN or, in the case of a foreign entity stockholder, an IRS Form W-8BEN-E, or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that a stockholder is a U.S. person.

Any amount paid as backup withholding will be credited against the stockholder’s income tax liability. In addition, we may be required to withhold a portion of any capital gain distributions made to any stockholders who fail to certify their non-foreign status to us. Currently, the backup withholding rate is 28%.

Additional Healthcare Tax

Certain U.S. persons, including individuals, estates, and trusts, will be subject to an additional 3.8% tax, which, for individuals, applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. Investment income generally includes passive income, such as interest, dividends, annuities, royalties, rents, and capital gains.

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act (“FATCA”) imposes a U.S. federal withholding tax on certain types of payments made to “foreign financial institutions” and certain other non-U.S. entities unless certain due diligence, reporting, withholding, and certification obligation requirements are satisfied. FATCA generally imposes a U.S. federal withholding tax at a rate of 30% on dividends on, and gross proceeds from the sale or other disposition of, our stock if paid to a foreign entity unless either (i) the foreign entity is a “foreign financial institution” that undertakes certain due diligence, reporting, withholding, and certification obligations or in the case of a foreign financial institution that is a resident in a jurisdiction that has entered into an intergovernmental agreement to implement FATCA, the entity complies with the diligence and reporting requirements of such agreement, (ii) the foreign entity is not a “foreign financial institution” and identifies certain of its U.S. investors, or (iii) the foreign entity otherwise is excepted under FATCA. If we determine withholding is appropriate with respect to our common stock, we may withhold tax at the applicable statutory rate, and we will not pay any additional amounts with respect to such withholding. However, under delayed effective dates provided for in the Treasury regulations and other IRS guidance, such required withholding will not begin until January 1, 2019, with respect to gross proceeds from a sale or other disposition of our common stock.

If withholding is required under FATCA on a payment related to our common stock, holders of our common stock that otherwise would not be subject to withholding (or that otherwise would be entitled to a reduced rate of withholding) generally will be required to seek a refund or credit from the IRS to obtain the benefit of such exemption or reduction (provided that such benefit is available). You should consult your own tax advisor regarding the effect of FATCA on an investment in our common stock.

Possible Legislative or Other Actions Affecting Tax Consequences

Prospective stockholders should recognize that the present federal income tax treatment of an investment in us may be modified by legislative, judicial, or administrative action at any time and that any such action may affect investments and commitments previously made. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process, the IRS, and the Treasury, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in federal tax laws and interpretations of these laws could adversely affect the tax consequences of your investment.

State, Local, and Foreign Taxes

We and our stockholders may be subject to state, local, or foreign taxation in various jurisdictions, including those in which we or they transact business or reside. The state, local, and foreign tax treatment of us and our stockholders may not conform to the federal income tax consequences discussed above. Consequently, prospective stockholders should consult their own tax advisors regarding the effects of state, local, and foreign tax laws on an investment in us.

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