UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

Commission File Number: 1-32261

BIOMED REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)		20-1142292 (I.R.S. Employer Identification No.)
17190 Bernardo Center Drive San Diego, California (Address of Principal Executive Offices)		92128 (Zip Code)

(858) 485-9840
(Registrant’s telephone number, including area code)

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 þ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of October 28, 2009 was 98,203,176.

 

 

BIOMED REALTY TRUST, INC.

FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements			3
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008 (Unaudited)			3
Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008 (Unaudited)			4
Consolidated Statements of Equity for the nine months ended September 30, 2009 (Unaudited)			5
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2009 and 2008 (Unaudited)			6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (Unaudited)			7
Notes to Consolidated Financial Statements (Unaudited)			8
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3 Quantitative and Qualitative Disclosures About Market Risk			41
Item 4 Controls and Procedures			42
PART II — OTHER INFORMATION
Item 1 Legal Proceedings			43
Item 1A Risk Factors			43
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3 Defaults Upon Senior Securities			43
Item 4 Submission of Matters to a Vote of Security Holders			43
Item 5 Other Information			43
Item 6 Exhibits			44
SIGNATURES			45
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I — FINANCIAL INFORMATION

ITEM 1.		CONSOLIDATED FINANCIAL STATEMENTS

BIOMED REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

		September 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Investments in real estate, net		$	2,978,701			$	2,960,429
Investments in unconsolidated partnerships			47,747				18,173
Cash and cash equivalents			30,279				21,422
Restricted cash			15,974				7,877
Accounts receivable, net			5,482				9,417
Accrued straight-line rents, net			75,489				58,138
Acquired above-market leases, net			3,368				4,329
Deferred leasing costs, net			85,926				101,519
Deferred loan costs, net			7,794				9,754
Other assets			43,051				38,256
Total assets		$	3,293,811			$	3,229,314
LIABILITIES AND EQUITY
Mortgage notes payable, net		$	671,693			$	353,161
Secured construction loan			—				507,128
Secured term loan			250,000				250,000
Exchangeable senior notes, net			103,524				122,043
Unsecured line of credit			321,124				108,767
Security deposits			7,187				7,623
Dividends and distributions payable			15,383				32,445
Accounts payable, accrued expenses, and other liabilities			71,389				66,821
Derivative instruments			15,948				126,091
Acquired below-market leases, net			12,344				17,286
Total liabilities			1,468,592				1,591,365
Equity:
Stockholders’ equity:
Preferred stock, $.01 par value, 15,000,000 shares authorized: 7.375% Series A cumulative redeemable preferred stock, $230,000,000 liquidation preference ($25.00 per share), 9,200,000 shares issued and outstanding at September 30, 2009 and December 31, 2008			222,413				222,413
Common stock, $.01 par value, 150,000,000 and 100,000,000 shares authorized, 98,203,176 and 80,757,421 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively			982				808
Additional paid-in capital			1,833,898				1,661,009
Accumulated other comprehensive loss			(88,894	)			(112,126	)
Dividends in excess of earnings			(154,045	)			(146,536	)
Total stockholders’ equity			1,814,354				1,625,568
Noncontrolling interests			10,865				12,381
Total equity			1,825,219				1,637,949
Total liabilities and equity		$	3,293,811			$	3,229,314

See accompanying notes to consolidated financial statements.

BIOMED REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2009				2008				2009				2008
						(Revised)								(Revised)
Revenues:
Rental		$	68,472			$	59,381			$	202,608			$	163,946
Tenant recoveries			19,240				20,911				57,510				53,297
Other income			5,251				519				12,876				1,697
Total revenues			92,963				80,811				272,994				218,940
Expenses:
Rental operations			18,726				17,027				55,539				44,345
Real estate taxes			8,233				6,763				23,079				16,948
Depreciation and amortization			30,953				21,506				82,767				58,525
General and administrative			5,956				4,589				16,363				16,428
Total expenses			63,868				49,885				177,748				136,246
Income from operations			29,095				30,926				95,246				82,694
Equity in loss of unconsolidated partnerships			(1,118	)			(208	)			(1,884	)			(338	)
Interest income			62				110				226				370
Interest expense			(19,614	)			(12,855	)			(44,567	)			(29,036	)
(Loss)/gain on derivative instruments			(14	)			(726	)			289				(726	)
Gain on extinguishment of debt, net			—				—				6,152				—
Net income			8,411				17,247				55,462				52,964
Net income attributable to noncontrolling interests			(108	)			(570	)			(1,458	)			(1,771	)
Net income attributable to Company			8,303				16,677				54,004				51,193
Preferred stock dividends			(4,241	)			(4,241	)			(12,722	)			(12,722	)
Net income available to common stockholders		$	4,062			$	12,436			$	41,282			$	38,471
Net income per share available to common stockholders:
Basic and diluted earnings per share		$	0.04			$	0.17			$	0.46			$	0.55
Weighted-average common shares outstanding:
Basic			97,315,601				71,513,333				88,754,885				68,995,174
Diluted			101,289,458				75,223,818				92,863,088				72,696,043

See accompanying notes to consolidated financial statements.

BIOMED REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
(Unaudited)

																		Accumulated
		Series A												Additional				Other				Dividends in				Total
		Preferred				Common Stock								Paid-In				Comprehensive				Excess of				Stockholders’				Noncontrolling				Total
		Stock				Shares				Amount				Capital				(Loss)/Income				Earnings				Equity				Interests				Equity
Balance at December 31, 2008		$	222,413				80,757,421			$	808			$	1,661,009			$	(112,126	)		$	(146,536	)		$	1,625,568			$	12,381			$	1,637,949
Net proceeds from sale of common stock			—				16,754,854				168				166,763				—				—				166,931				—				166,931
Net issuances of unvested restricted common stock			—				341,840				3				(33	)			—				—				(30	)			—				(30	)
Conversion of operating partnership units to common stock			—				349,061				3				2,131				—				—				2,134				(2,134	)			—
Vesting of share-based awards			—				—				—				4,163				—				—				4,163				—				4,163
Allocation of equity to noncontrolling interests			—				—				—				(135	)			—				—				(135	)			135				—
Common stock dividends			—				—				—				—				—				(48,791	)			(48,791	)			—				(48,791	)
Net income			—				—				—				—				—				54,004				54,004				1,458				55,462
Preferred stock dividends			—				—				—				—				—				(12,722	)			(12,722	)			—				(12,722	)
OP unit distributions			—				—				—				—				—				—				—				(1,815	)			(1,815	)
Unrealized gain on marketable securities			—				—				—				—				1,487				—				1,487				54				1,541
Amortization of deferred interest costs			—				—				—				—				1,745				—				1,745				52				1,797
Unrealized gains on derivative instruments			—				—				—				—				20,000				—				20,000				734				20,734
Balance at September 30, 2009		$	222,413				98,203,176			$	982			$	1,833,898			$	(88,894	)		$	(154,045	)		$	1,814,354			$	10,865			$	1,825,219

See accompanying notes to consolidated financial statements.

BIOMED REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
						(Revised)								(Revised)
Net income available to common stockholders and noncontrolling interests		$	4,170			$	13,006			$	42,740			$	40,242
Other comprehensive income/(loss):
Unrealized gain/(loss) on derivative instruments			1,978				(7,681	)			23,436				(9,182	)
Equity in other comprehensive income of unconsolidated partnerships			(198	)			(202	)			(434	)			110
Deferred settlement payments, net on interest rate swaps			(668	)			(1,996	)			(2,268	)			(4,822	)
Unrealized gain on marketable securities			(199	)			—				1,541				—
Total other comprehensive income/(loss)			913				(9,879	)			22,275				(13,894	)
Comprehensive income			5,083				3,127				65,015				26,348
Comprehensive (income)/loss attributable to noncontrolling interests			(187	)			151				(2,298	)			1,101
Comprehensive income attributable to common stockholders		$	4,896			$	3,278			$	62,717			$	27,449

See accompanying notes to consolidated financial statements.

BIOMED REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Nine Months Ended
		September 30,
		2009				2008
						(Revised)
Operating activities:
Net income		$	55,462			$	52,964
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on extinguishment of debt			(6,152	)			—
(Gain)/loss on derivative instruments			(289	)			726
Depreciation and amortization			82,767				58,525
Allowance for doubtful accounts			5,163				104
Revenue reduction attributable to acquired above-market leases			961				1,084
Revenue recognized related to acquired below-market leases			(6,320	)			(4,496	)
Revenue reduction attributable to lease incentives			949				569
Compensation expense related to restricted common stock and LTIP units			4,163				4,334
Amortization of deferred loan costs			3,166				2,837
Amortization of debt premium on mortgage notes payable			(1,386	)			(886	)
Amortization of debt discount on exchangeable senior notes			1,383				2,028
Loss from unconsolidated partnerships			1,884				338
Distributions representing return on capital from unconsolidated partnerships			92				627
Amortization of deferred interest costs			1,797				—
Changes in operating assets and liabilities:
Restricted cash			(8,097	)			576
Accounts receivable			3,640				(2,931	)
Accrued straight-line rents			(22,219	)			(16,306	)
Deferred leasing costs			(5,332	)			(8,427	)
Other assets			(3,627	)			(6,861	)
Security deposits			(436	)			379
Accounts payable, accrued expenses and other liabilities			7,102				(2,502	)
Net cash provided by operating activities			114,671				82,682
Investing activities:
Purchases of interests in and additions to investments in real estate and related intangible assets			(81,955	)			(176,974	)
Distributions representing return of capital from unconsolidated partnerships			—				1,373
Contributions to unconsolidated partnerships, net			(31,985	)			65
Receipts of master lease payments			—				86
Additions to non-real estate assets			(281	)			(7,790	)
Net cash used in investing activities			(114,221	)			(183,240	)
Financing activities:
Proceeds from common stock offering			174,250				156,289
Payment of common stock offering costs			(7,319	)			(6,682	)
Payment of deferred loan costs			(1,926	)			(140	)
Unsecured line of credit proceeds			399,337				145,251
Unsecured line of credit payments			(186,980	)			(149,538	)
Mortgage loan proceeds			368,000				—
Principal payments on mortgage notes payable			(48,082	)			(23,244	)
Repurchases of exchangeable senior notes			(12,605	)			—
Settlement of derivative instruments			(86,482	)			—
Secured construction loan proceeds			—				75,838
Secured construction loan payments			(507,128	)			—
Deferred settlement payments, net on interest rate swaps			(2,268	)			(4,823	)
Distributions to operating partnership unit and LTIP unit holders			(2,626	)			(3,373	)
Dividends paid to common stockholders			(65,042	)			(66,326	)
Dividends paid to preferred stockholders			(12,722	)			(12,722	)
Net cash provided by financing activities			8,407				110,530
Net increase in cash and cash equivalents			8,857				9,972
Cash and cash equivalents at beginning of period			21,422				13,479
Cash and cash equivalents at end of period		$	30,279			$	23,451
Supplemental disclosure of cash flow information:
Cash paid during the period for interest (net of amounts capitalized of $10,545 and $35,481, respectively)		$	37,760			$	29,192
Supplemental disclosure of non-cash investing and financing activities:
Accrual for preferred stock dividends declared		$	4,241			$	4,241
Accrual for common stock dividends declared			10,802				24,026
Accrual for distributions declared for operating partnership unit and LTIP unit holders			340				1,174
Accrued additions to real estate and related intangible assets			22,623				41,834

See accompanying notes to consolidated financial statements.

BIOMED REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Description of Business

BioMed Realty Trust, Inc., a Maryland corporation (the “Company”), was incorporated in Maryland on April 30, 2004. On August 11, 2004, the Company commenced operations after completing its initial public offering. The Company operates as a fully integrated, self-administered and self-managed real estate investment trust (“REIT”) focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry principally through its subsidiary, BioMed Realty, L.P., a Maryland limited partnership (the “Operating Partnership”). The Company’s tenants primarily include biotechnology and pharmaceutical companies, scientific research institutions, government agencies and other entities involved in the life science industry. The Company’s properties are generally located in markets with well-established reputations as centers for scientific research, including Boston, San Diego, San Francisco, Seattle, Maryland, Pennsylvania and New York/New Jersey.

2. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments and eliminations, consisting of normal recurring adjustments necessary for a fair presentation of the financial statements for these interim periods have been recorded. In preparing the accompanying interim financial statements, the Company has evaluated the potential occurrence of subsequent events through October 29, 2009, the date at which the financial statements were issued. These financial statements should be read in conjunction with the audited consolidated financial statements and notes therein included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, partnerships and limited liability companies it controls, and variable interest entities (“VIEs”) for which the Company has determined itself to be the primary beneficiary. A VIE is an entity in which contractual, ownership, or other pecuniary interests change in response to changes in the fair-value of the entity’s net assets, exclusive of variable interests.

All material intercompany transactions and balances have been eliminated. The Company consolidates entities the Company controls and records a noncontrolling interest for the portions not owned by the Company. Control is determined, where applicable, by the sufficiency of equity invested and the rights of the equity holders, and by the ownership of a majority of the voting interests, with consideration given to the existence of approval or veto rights granted to the minority stockholder. If the minority stockholder holds substantive participating rights, it overcomes the presumption of control by the majority voting interest holder. In contrast, if the minority stockholder simply holds protective rights (such as consent rights over certain actions), it does not overcome the presumption of control by the majority voting interest holder.

Investments in Partnerships

The Company evaluates its investments in limited liability companies and partnerships to determine whether such entities may be a VIE and, if a VIE, whether the Company is the primary beneficiary. Generally, an entity is determined to be a VIE when either (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The primary beneficiary is the entity that will absorb the majority of expected losses of the VIE (should those losses be incurred), receive the majority of the expected returns of the VIE (should those returns be generated), or both. The obligation to absorb expected losses and the right to receive expected returns when a reporting entity is affiliated with a VIE must be based on ownership, contractual, and/or other pecuniary interests in that VIE.

If the above conditions do not apply, the Company considers whether a general partner controls a limited partnership. The general partner in a limited partnership is presumed to control that limited partnership. The presumption may be overcome if the limited partners have either (1) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (2) substantive participating rights, which provide the limited partners with the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the limited partnership’s business and thereby preclude the general partner from exercising unilateral control over the partnership. If these criteria are met and the Company is the general partner or the managing member, as applicable, the consolidation of the partnership or limited liability company is required.

Except for investments that are consolidated, the Company accounts for investments in entities over which it exercises significant influence, but does not control, under the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for equity in earnings and cash contributions and distributions. Under the equity method of accounting, the Company’s net equity in the investment is reflected in the consolidated balance sheets and its share of net income or loss is included in the Company’s consolidated statements of income.

On a periodic basis, management assesses whether there are any indicators that the carrying value of the Company’s investments in unconsolidated partnerships or limited liability companies may be impaired on a more than temporary basis. An investment is impaired only if management’s estimate of the fair-value of the investment (based on estimated future discounted cash flows) is less than the carrying value of the investment on a more than temporary basis. To the extent impairment has occurred, the loss is measured as the excess of the carrying value of the investment over the fair-value of the investment. Management does not believe that the value of any of the Company’s unconsolidated investments in partnerships or limited liability companies was impaired as of September 30, 2009.

Investments in Real Estate

Investments in real estate, net consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Land		$	405,769			$	347,878
Land under development			11,631				69,529
Buildings and improvements			2,452,752				2,104,072
Construction in progress			152,711				439,221
Tenant improvements			179,259				161,839
			3,202,122				3,122,539
Accumulated depreciation			(223,421	)			(162,110	)
		$	2,978,701			$	2,960,429

On February 24, 2009, the Company paid $15.0 million upon completion of an expansion of an existing building located on the Company’s 6114-6154 Nancy Ridge Drive property pursuant to the purchase and sale agreement for the original acquisition of the property in May 2007. In connection with the transaction, the Company recognized a below-market lease intangible liability related to the contractual lease rate on the additional premises of approximately $1.4 million.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed

The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If estimated future undiscounted cash flows (excluding interest charges) expected to result from a long-lived asset’s use and eventual disposition are insufficient to recover the carrying value of the long-lived asset, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair-value of the property. The Company is required to make subjective assessments as to whether there are impairments in the values of its investments in long-lived assets, including estimates of future cash flows, considering factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. These assessments have a direct impact on the Company’s net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Although the Company’s strategy is to hold its properties over the long-term, if the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized to reduce the property to the lower of the carrying amount or fair-value, and such loss could be material. If the Company determines that impairment has occurred, the affected assets must be reduced to their fair- value. As of and through September 30, 2009, no assets have been identified as impaired and no such impairment losses have been recognized.

Deferred Leasing Costs

Leasing commissions and other direct costs associated with new or renewal lease activity are recorded at cost and amortized on a straight-line basis over the terms of the respective leases, with remaining terms ranging from less than one year to approximately 15 years as of September 30, 2009. Deferred leasing costs also include the net carrying value of acquired in-place leases and acquired management agreements.

Deferred leasing costs, net at September 30, 2009 consisted of the following (in thousands):

		Balance at
		September 30,				Accumulated
		2009				Amortization				Net
Acquired in-place leases		$	168,390			$	(109,152	)		$	59,238
Acquired management agreements			12,921				(10,243	)			2,678
Deferred leasing and other direct costs			32,077				(8,067	)			24,010
		$	213,388			$	(127,462	)		$	85,926

Deferred leasing costs, net at December 31, 2008 consisted of the following (in thousands):

		Balance at
		December 31,				Accumulated
		2008				Amortization				Net
Acquired in-place leases		$	168,390			$	(92,072	)		$	76,318
Acquired management agreements			12,921				(8,602	)			4,319
Deferred leasing and other direct costs			26,364				(5,482	)			20,882
		$	207,675			$	(106,156	)		$	101,519

Revenue Recognition

The Company commences revenue recognition on its leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. In determining what constitutes the leased asset, the Company evaluates whether the Company or the lessee is the owner, for accounting purposes, of the tenant improvements. If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If the Company concludes that it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduce revenue recognized over the term of the lease. In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct improvements. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes. These factors include:

•

whether the lease stipulates how and on what a tenant improvement allowance may be spent;

•

whether the tenant or landlord retains legal title to the improvements;

•

the uniqueness of the improvements;

•

the expected economic life of the tenant improvements relative to the length of the lease;

•

the responsible party for construction cost overruns; and

•

who constructs or directs the construction of the improvements.

The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In making that determination, the Company considers all of the above factors. However, no one factor is determinative in reaching a conclusion.

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the term of the related lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in accrued straight-line rents on the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. Existing leases at acquired properties are reviewed at the time of acquisition to determine if contractual rents are above or below current market rents for the acquired property. An identifiable lease intangible asset or liability is recorded based on the present value (using a discount rate that reflects the risks associated with the acquired leases) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) the Company’s estimate of the fair market lease rates for the corresponding in-place leases at acquisition, measured over a period equal to the remaining non-cancelable term of the leases and any fixed-rate renewal periods (based on the Company’s assessment of the likelihood that the renewal periods will be exercised). The capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the remaining non-cancelable terms of the respective leases and any fixed-rate renewal periods, if applicable. If a tenant abandons its space or terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off.

Acquired above-market leases, net consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Acquired above-market leases		$	12,729			$	12,729
Accumulated amortization			(9,361	)			(8,400	)
		$	3,368			$	4,329

Acquired below-market leases, net consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Acquired below-market leases		$	39,339			$	37,961
Accumulated amortization			(26,995	)			(20,675	)
		$	12,344			$	17,286

Lease incentives, net, which is included in other assets on the accompanying consolidated balance sheets, consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Lease incentives		$	13,066			$	11,698
Accumulated amortization			(3,160	)			(2,211	)
		$	9,906			$	9,487

Substantially all rental operations expenses, consisting of real estate taxes, insurance and common area maintenance costs, are subject to recovery from tenants under the terms of lease agreements. Amounts recovered are dependent on several factors, including occupancy and lease terms. Revenues are recognized in the period the expenses are incurred. The reimbursements are recorded in revenues as tenant recoveries, and the expenses are recorded in rental operations expenses, as the Company is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the credit risk.

Lease termination fees are recognized in other revenue when the related leases are canceled, the amounts to be received are fixed and determinable and collectability is assured, and when the Company has no continuing obligation to provide services to such former tenants. The amortization of the related straight-line rent receivable, tenant recoveries and remaining other tangible and intangible assets corresponding to the lease terminations is accelerated to the termination date as a charge to their respective line items. The effect of lease terminations for the three and nine months ended September 30, 2009 and 2008 was as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Rental revenues		$	458			$	—			$	3,077			$	—
Other revenue			4,396				—				10,866				—
Total revenue			4,854				—				13,943				—
Rental operations expense			660				—				4,498				—
Depreciation and amortization			6,150				—				10,155				—
Total expenses			6,810				—				14,653				—
Net effect of lease terminations		$	(1,956	)		$	—			$	(710	)		$	—

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent and tenant recovery payments or defaults. The Company may also maintain an allowance for accrued straight-line rents and amounts due from lease terminations based on an assessment of the collectability of the balance.

Investments

The Company, through its Operating Partnership, holds equity investments in certain publicly-traded companies and privately-held companies primarily involved in the life science industry. The Company may accept equity investments from tenants in lieu of cash rents, as prepaid rent pursuant to the execution of a lease, or as additional consideration for a lease termination. The Company does not acquire investments for trading purposes and, as a result, all of the Company’s investments in publicly-traded companies are considered “available-for-sale” and are recorded at fair-value. Changes in the fair-value of investments classified as available-for-sale are recorded in comprehensive income. The fair-value of the Company’s equity investments in publicly-traded companies is determined based upon the closing trading price of the equity security as of the balance sheet date, with unrealized gains and losses shown as a separate component of stockholders’ equity. Investments in privately-held companies are generally accounted for under the cost method, because the Company does not influence any operating or financial policies of the companies in which it invests. The classification of investments is determined at the time each investment is made, and such determination is reevaluated at each balance sheet date. The cost of investments sold is determined by the specific identification method, with net realized gains and losses included in other income. For all investments, if a decline in the fair-value of an investment below its carrying value is determined to be other-than-temporary, such investment is written down to its estimated fair-value with a non-cash charge to earnings. The factors that the Company considers 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.

Investments, which are included in other assets on the accompanying consolidated balance sheets, consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Equity securities, initial cost basis		$	854			$	—
Unrealized gain			1,541				—
Equity securities, fair-value		$	2,395			$	—

During the three and nine months ended September 30, 2009, the Company sold a portion of its equity securities, resulting in net proceeds of approximately $355,000 and a realized gain on sale of approximately $283,000, which was reclassified from accumulated other comprehensive loss and recognized in other income in the accompanying consolidated statements of income.

Share-Based Payments

All share-based payments to employees are recognized in the income statement based on their fair-value. Through September 30, 2009, the Company had only awarded restricted stock and long-term incentive plan (“LTIP”) unit grants under its incentive award plan, which are valued based on the closing market price of the underlying common stock on the date of grant, and had not granted any stock options. The fair-value of all share-based payments is amortized to general and administrative expense and rental operations expense over the relevant service period, adjusted for anticipated forfeitures.

Assets and Liabilities Measured at Fair-Value

On January 1, 2008, the Company adopted new accounting guidance establishing a framework for measuring fair-value and expanding disclosure regarding related fair-value measurements. The guidance applies to reported balances that are required or permitted to be measured at fair-value under existing accounting pronouncements; accordingly, the guidance does not require any new fair-value measurements of reported balances.

On January 1, 2008, the Company adopted new fair-value option accounting guidance, which permits companies to choose to measure certain financial instruments and other items at fair-value in order to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently. However, the Company has not elected to measure any additional financial instruments and other items at fair-value (other than those previously required under other GAAP rules or standards).

The guidance emphasizes that fair-value is a market-based measurement, not an entity-specific measurement. Therefore, a fair-value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair-value measurements, a fair-value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where 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 input that is significant to the fair-value measurement in its entirety. The Company’s 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.

The Company has used forward starting and interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair-values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair-value measurements. In adjusting the fair-value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair-value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2009, the Company has determined that the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair-value hierarchy (see Note 8).

The valuation of the Company’s investments in publicly-traded investments utilizes observable market-based Level 1 inputs, based on the closing trading price of securities as of the balance sheet date. The valuation of the Company’s investments in private companies utilizes Level 3 inputs (including any discounts applied to the valuations). However, as of September 30, 2009, the Company has determined that the impact of the use of Level 3 inputs on the overall valuation of all its investments is not significant.

No other assets or liabilities are measured at fair-value on a recurring basis, or have been measured at fair-value on a non-recurring basis subsequent to initial recognition, in the accompanying consolidated balance sheets as of September 30, 2009.

Derivative Instruments

On January 1, 2009, the Company adopted new accounting guidance that requires the Company to provide users of financial statements an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. This includes providing qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair-value of and gains and losses on derivative instruments, and disclosures about credit risk-related contingent features in derivative instruments.

The Company records all derivatives on the consolidated balance sheets at fair-value. In determining the fair-value of its derivatives, the Company considers the credit risk of its counterparties and the Company. These counterparties are generally larger financial institutions engaged in providing a variety of financial services. These institutions generally face similar risks regarding adverse changes in market and economic conditions, including, but not limited to, fluctuations in interest rates, exchange rates, equity and commodity prices and credit spreads. The ongoing disruptions in the financial markets have heightened the risks to these institutions. While management believes that its counterparties will meet their obligations under the derivative contracts, it is possible that defaults may occur.

The accounting for changes in the fair-value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair-value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair-value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair-value of the hedged asset or liability that are attributable to the hedged risk in a fair-value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair-value of the derivative is initially reported in accumulated other comprehensive income (outside of earnings) and subsequently reclassified to earnings in the period in which the hedged transaction affects earnings. If charges relating to the hedged transaction are being deferred pursuant to redevelopment or development activities, the effective portion of changes in the fair-value of the derivative are also deferred in other comprehensive income on the consolidated balance sheet, and are amortized to the income statement once the deferred charges from the hedged transaction begin again to affect earnings. The ineffective portion of changes in the fair-value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. For derivatives that are not classified as hedges, changes in the fair-value of the derivative are recognized directly in earnings in the period in which the change occurs.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

The Company’s primary objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. During the three and nine months ended September 30, 2009 and 2008, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and future variability in the interest-related cash flows from forecasted issuances of debt (see Note 8). The Company formally documents the hedging relationships for all derivative instruments, has historically accounted for all of its interest rate swap agreements as cash flow hedges, and does not use derivatives for trading or speculative purposes.

Management’s Estimates

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reporting of revenues and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.

Segment Information

The Company’s properties share the following similar economic and operating characteristics: (1) they have similar forecasted returns (measured by capitalization rate at acquisition), (2) they are generally occupied almost exclusively by life science tenants that are public companies, government agencies or their subsidiaries, (3) they are generally located near areas of high life science concentrations with similar demographics and site characteristics, (4) the majority of properties are designed specifically for life science tenants that require infrastructure improvements not generally found in standard properties, and (5) the associated leases are primarily triple-net leases, generally with a fixed rental rate and scheduled annual escalations, that provide for a recovery of close to 100% of operating expenses. Consequently, the Company’s properties qualify for aggregation into one reporting segment.

Reclassifications and Adoption of New Accounting Pronouncements

Certain prior year amounts have been reclassified to conform to the current year presentation. In addition, certain prior year amounts have been revised as a result of the adoption on January 1, 2009 of new accounting guidance on noncontrolling interests (see Note 3), convertible debt instruments that may be settled in cash upon conversion (see Note 5), and share-based payment transactions that are participating securities (see Note 6), which have been applied retroactively to prior periods.

3. Equity

During the nine months ended September 30, 2009, the Company issued restricted stock awards to employees and to members of its board of directors totaling 354,600 and 10,000 shares of common stock, respectively (3,435 shares of common stock were surrendered to the Company and subsequently retired in lieu of cash payments for taxes due on the vesting of restricted stock and 19,325 shares of common stock were forfeited during that period), which are included in the total of common stock outstanding as of the period end.

On May 21, 2009, the Company completed the issuance of 16,754,854 shares of common stock, including the exercise of an over-allotment option of 754,854 shares, resulting in net proceeds of approximately $166.9 million, after deducting the underwriters’ discount and commissions and offering expenses. The net proceeds to the Company were utilized to repay a portion of the outstanding indebtedness on its unsecured line of credit and for other general corporate and working capital purposes.

On September 4, 2009, the Company entered into equity distribution agreements with three sales agents under which it may offer and sell shares of its common stock having an aggregate offering price of up to $120.0 million over time. During the three months ended September 30, 2009, no shares were issued under any of the equity distribution agreements.

The Company maintains a Dividend Reinvestment Program and a Cash Option Purchase Plan (collectively, the “DRIP Plan”) to provide existing stockholders of the Company with an opportunity to invest automatically the cash dividends paid upon shares of the Company’s common stock held by them, as well as permit existing and prospective stockholders to make voluntary cash purchases. Participants may elect to reinvest a portion of, or the full amount of cash dividends paid, whereas optional cash purchases are normally limited to a maximum amount of $10,000. In addition, the Company may elect to establish a discount ranging from 0% to 5% from the market price applicable to newly issued shares of common stock purchased directly from the Company. The Company may change the discount, initially set at 0%, at its discretion, but may not change the discount more frequently than once in any three-month period. Shares purchased under the DRIP Plan shall be, at the Company’s option, purchased from either (1) authorized, but previously unissued shares of common stock, (2) shares of common stock purchased in the open market or privately negotiated transactions, or (3) a combination of both.

Common Stock, Partnership Units and LTIP Units

As of September 30, 2009, the Company had outstanding 98,203,176 shares of common stock and 2,600,288 and 486,165 partnership and LTIP units, respectively. A share of the Company’s common stock and the partnership and LTIP units have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership. The partnership units are further discussed below in this Note 3 and the LTIP units are discussed further below in this Note 3.

7.375% Series A Cumulative Redeemable Preferred Stock

As of September 30, 2009, the Company had outstanding 9,200,000 shares of 7.375% Series A cumulative redeemable preferred stock, or Series A preferred stock. Dividends are cumulative on the Series A preferred stock from the date of original issuance in the amount of $1.84375 per share each year, which is equivalent to 7.375% of the $25.00 liquidation preference per share. Dividends on the Series A preferred stock are payable quarterly in arrears on or about the 15th day of January, April, July and October of each year. Following a change in control, if the Series A preferred stock is not listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Global Market, holders will be entitled to receive (when and as authorized by the board of directors and declared by the Company), cumulative cash dividends from, but excluding, the first date on which both the change of control and the delisting occurred at an increased rate of 8.375% per annum of the $25.00 liquidation preference per share (equivalent to an annual rate of $2.09375 per share) for as long as the Series A preferred stock is not listed. The Series A preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the Series A preferred stock will rank senior to the Company’s common stock with respect to the payment of distributions and other amounts. The Company is not allowed to redeem the Series A preferred stock before January 18, 2012, except in limited circumstances to preserve its status as a REIT. On or after January 18, 2012, the Company may, at its option, redeem the Series A preferred stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such Series A preferred stock up to, but excluding the redemption date. Holders of the Series A preferred stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. The Series A preferred stock is not convertible into or exchangeable for any other property or securities of the Company.

Dividends and Distributions

The following table lists the dividends and distributions made by the Company and the Operating Partnership during the nine months ended September 30, 2009:

										Dividend and		Dividend and
				Amount Per						Distribution		Distribution Amount
Declaration Date		Securities Class		Share/Unit				Period Covered		Payable Date		(in thousands)
March 16, 2009		Common stock and partnership and LTIP units		$	0.33500			January 1, 2009 to March 31, 2009		April 15, 2009		$	28,322
March 16, 2009		Series A preferred Stock		$	0.46094			January 16, 2009 to April 15, 2009		April 15, 2009		$	4,240
June 15, 2009		Common stock and partnership and LTIP units		$	0.11000			April 1, 2009 to June 30, 2009		July 15, 2009		$	11,142
June 15, 2009		Series A preferred Stock		$	0.46094			April 16, 2009 to July 15, 2009		July 15, 2009		$	4,241
September 15, 2009		Common stock and partnership and LTIP units		$	0.11000			July 1, 2009 to September 30, 2009		October 15, 2009		$	11,142
September 15, 2009		Series A preferred Stock		$	0.46094			July 16, 2009 to October 15, 2009		October 15, 2009		$	4,241

Total 2009 dividends and distributions declared through September 30, 2009:

Common stock, partnership units, and LTIP units		$	50,606
Series A preferred stock			12,722
		$	63,328

Noncontrolling Interests

On January 1, 2009, the Company adopted new accounting guidance which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The new guidance also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. In addition, it establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that does not result in deconsolidation and requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. As a result of the issuance of the new guidance, if noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

Noncontrolling interests on the consolidated balance sheets relate primarily to the partnership and LTIP units in the Operating Partnership (collectively, the “Units”) that are not owned by the Company. In conjunction with the formation of the Company, certain persons and entities contributing interests in properties to the Operating Partnership received partnership units. In addition, certain employees of the Operating Partnership received LTIP units in connection with services rendered or to be rendered to the Operating Partnership. Limited partners who have been issued Units have the right to require the Operating Partnership to redeem part or all of their Units, which right with respect to LTIP units is subject to vesting and the satisfaction of other conditions. The Company may elect to acquire those Units in exchange for shares of the Company’s common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events, or pay cash based upon the fair market value of an equivalent number of shares of the Company’s common stock at the time of redemption. With respect to the noncontrolling interests in the Operating Partnership, noncontrolling interests with the redemption provisions that permit the issuer to settle in either cash or common stock at the option of the issuer are further evaluated to determine whether temporary or permanent equity classification on the balance sheet is appropriate. Since the Units comprising the noncontrolling interests contain such a provision, the Company evaluated this guidance and determined that the Units meet the requirements to qualify for presentation as permanent equity.

The new guidance on noncontrolling interests was required to be applied prospectively after adoption, with the exception of the presentation and disclosure requirements, which were applied retrospectively for all periods presented. As a result, the Company reclassified noncontrolling interests to permanent equity in the accompanying consolidated balance sheets. For the nine months ended September 30, 2009, the Company recorded an increase to the carrying value of noncontrolling interests due to changes in their ownership percentage of approximately $135,000 (a corresponding decrease was recorded to additional paid-in capital) to reflect the noncontrolling interests’ proportionate share of equity. In subsequent periods, the Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling interest as permanent equity in the consolidated balance sheets. Any noncontrolling interest that fails to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (a) the carrying amount, or (b) its redemption value as of the end of the period in which the determination is made.

The redemption value of the Units not owned by the Company at September 30, 2009 was approximately $44.4 million based on the average closing price of the Company’s common stock of $14.37 per share for the ten consecutive trading days immediately preceding September 30, 2009.

The following table shows the vested ownership interests in the Operating Partnership:

		September 30, 2009								December 31, 2008
		Partnership Units				Percentage of				Partnership Units				Percentage of
		and LTIP Units				Total				and LTIP Units				Total
BioMed Realty Trust			97,381,235				97.1	%			80,208,533				96.3	%
Noncontrolling interest consisting of:
Partnership and LTIP units held by employees and related parties			2,256,386				2.3	%			2,961,369				3.5	%
Partnership and LTIP units held by third parties(1)			595,551				0.6	%			122,192				0.2	%
Total			100,233,172				100.0	%			83,292,094				100.0	%

A charge is recorded each period to the consolidated statements of income for the noncontrolling interests’ proportionate share of the Company’s net income. An additional adjustment is made each period such that the carrying value of the noncontrolling interests equals the greater of (a) the noncontrolling interests’ proportionate share of equity as of the period end, or (b) the redemption value of the noncontrolling interests as of the period end, if classified as temporary equity.

The accompanying consolidated financial statements include the results of investments in three VIEs in which the Company was considered to be the primary beneficiary for some or all of the periods presented. As of September 30, 2009, the Company had an 87.5% interest in the limited liability company that owns the Ardenwood Venture property. This entity is consolidated in the accompanying consolidated financial statements. Equity interests in this limited liability company not owned by the Company are classified as a portion of the noncontrolling interests on the consolidated balance sheets as of September 30, 2009. Subject to certain conditions, the Company has the right to purchase the other member’s interest or sell its own interest in the Ardenwood limited liability company. The estimated fair-value of this option is not material and the Company believes that it will have adequate resources to settle the option if exercised.

On June 2, 2008, pursuant to the exercise of a put option by the noncontrolling interest member, the Company completed the purchase of the remaining 30% interest in the limited liability company that owns the Waples Street property for consideration of approximately $1.8 million, excluding closing costs. On October 14, 2008, the Company completed the purchase of the remaining 30% interest in the limited liability company that owns the 530 Fairview Avenue property for consideration of approximately $2.6 million, excluding closing costs.

4. Mortgage Notes Payable

A summary of the Company’s outstanding consolidated mortgage notes payable was as follows (dollars in thousands):

		Stated Fixed				Effective				Principal Balance
		Interest				Interest				September 30,				December 31,
		Rate				Rate				2009				2008				Maturity Date
Ardentech Court			7.25	%			5.06	%		$	4,382			$	4,464			July 1, 2012
Bayshore Boulevard			4.55	%			4.55	%			—				14,923			January 1, 2010
Bridgeview Technology Park I			8.07	%			5.04	%			11,282				11,384			January 1, 2011
Center for Life Science | Boston			7.75	%			7.75	%			349,506				—			June 30, 2014
500 Kendall Street (Kendall D)			6.38	%			5.45	%			66,521				67,810			December 1, 2018
Lucent Drive			5.50	%			5.50	%			5,183				5,341			January 21, 2015
Monte Villa Parkway			4.55	%			4.55	%			—				9,084			January 1, 2010
6828 Nancy Ridge Drive			7.15	%			5.38	%			6,620				6,694			September 1, 2012
Road to the Cure			6.70	%			5.78	%			15,018				15,200			January 31, 2014
Science Center Drive			7.65	%			5.04	%			11,025				11,148			July 1, 2011
Shady Grove Road			5.97	%			5.97	%			147,000				147,000			September 1, 2016
Sidney Street			7.23	%			5.11	%			28,543				29,184			June 1, 2012
9865 Towne Centre Drive			7.95	%			7.95	%			17,942				—			June 30, 2013
9885 Towne Centre Drive			4.55	%			4.55	%			—				20,749			January 1, 2010
900 Uniqema Boulevard			8.61	%			5.61	%			1,234				1,357			May 1, 2015
											664,256				344,338
Unamortized premiums											7,437				8,823
										$	671,693			$	353,161

On June 19, 2009, the Company closed on an $18.0 million mortgage loan, which is secured by the Company’s 9865 Towne Centre Drive property in San Diego, California. The mortgage loan bears interest at a fixed-rate of 7.95% per annum and matures in June 2013.

On June 29, 2009, the Company closed on a $350.0 million mortgage loan, which is secured by the Company’s Center for Life Science | Boston property in Boston, Massachusetts. The mortgage loan bears interest at a fixed-rate of 7.75% per annum and matures in June 2014. The Company utilized the net proceeds from the new mortgage loan, along with borrowings from its unsecured line of credit, to repay the outstanding $507.1 million secured construction loan, which was secured by the Center for Life Science | Boston property. The new loan includes a financial covenant relating to a minimum amount of net worth. Management believes that it was in compliance with this covenant as of September 30, 2009.

Premiums were recorded upon assumption of the mortgage notes payable at the time of acquisition to account for above-market interest rates. Amortization of these premiums is recorded as a reduction to interest expense over the remaining term of the respective note using the effective-interest method.

The Company intends to repay any principal and accrued interest due in the next twelve months through the use of cash from operations or borrowings from its unsecured line of credit.

5. Credit Facilities, Exchangeable Senior Notes, and Other Debt Instruments

Unsecured Line of Credit

The Company’s unsecured line of credit with KeyBank National Association (“KeyBank”) and other lenders has a borrowing capacity of $600.0 million and a maturity date of August 1, 2011. The unsecured line of credit bears interest at a floating rate equal to, at the Company’s option, either (1) reserve-adjusted LIBOR plus a spread which ranges from 100 to 155 basis points, depending on the Company’s leverage, or (2) the higher of (a) the prime rate then in effect plus a spread which ranges from 0 to 25 basis points, or (b) the federal funds rate then in effect plus a spread which ranges from 50 to 75 basis points, in each case, depending on the Company’s leverage. Subject to the administrative agent’s reasonable discretion, the Company may increase the amount of the unsecured line of credit to $1.0 billion upon satisfying certain conditions. In addition, the Company, at its sole discretion, may extend the maturity date of the unsecured line of credit to August 1, 2012 after satisfying certain conditions and paying an extension fee based on the then current facility commitment. The Company has deferred the loan costs associated with the subsequent amendments to the unsecured line of credit, which are being amortized to expense with the unamortized loan costs from the original debt facility over the remaining term. At September 30, 2009, the Company had $321.1 million in outstanding borrowings on its unsecured line of credit, with a weighted average interest rate of 1.4% on the unhedged portion of the outstanding debt of approximately $171.1 million.

Secured Term Loan

The Company’s $250.0 million secured term loan from KeyBank and other lenders, which is secured by the Company’s interests in twelve of its properties, has a maturity date of August 1, 2012. The secured term loan bears interest at a floating rate equal to, at the Company’s option, either (1) reserve-adjusted LIBOR plus 165 basis points or (2) the higher of (a) the prime rate then in effect plus 25 basis points or (b) the federal funds rate then in effect plus 75 basis points. The secured term loan is also secured by the Company’s interest in any distributions from these properties, a pledge of the equity interests in a subsidiary owning one of these properties, and a pledge of the equity interests in a subsidiary owning an interest in another of these properties. At September 30, 2009, the Company had $250.0 million in outstanding borrowings on its secured term loan, with an interest rate of 1.9% (excluding the effect of interest rate swaps).

The terms of the credit agreements for the unsecured line of credit and the secured term loan include certain restrictions and covenants, which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens. The terms also require compliance with financial ratios relating to the minimum amounts of net worth, fixed charge coverage, unsecured debt service coverage, the maximum amount of secured and secured recourse indebtedness, leverage ratio and certain investment limitations. The dividend restriction referred to above provides that, except to enable the Company to continue to qualify as a REIT for federal income tax purposes, the Company will not make distributions with respect to common stock or other equity interests in an aggregate amount for the preceding four fiscal quarters in excess of 95% of funds from operations, as defined, for such period, subject to other adjustments. Management believes that it was in compliance with the covenants as of September 30, 2009.

Exchangeable Senior Notes, net

On September 25, 2006, the Operating Partnership issued $175.0 million aggregate principal amount of its 4.50% Exchangeable Senior Notes due 2026 (the “Notes”). The Notes are general senior unsecured obligations of the Operating Partnership and rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership. Interest at a rate of 4.50% per annum is payable on April 1 and October 1 of each year, beginning on April 1, 2007, until the stated maturity date of October 1, 2026. The terms of the Notes are governed by an indenture, dated September 25, 2006, among the Operating Partnership, as issuer, the Company, as guarantor, and U.S. Bank National Association, as trustee. The Notes contain an exchange settlement feature, which provides that the Notes may, on or after September 1, 2026 or under certain other circumstances, be exchangeable for cash (up to the principal amount of the Notes) and, with respect to excess exchange value, into, at the Company’s option, cash, shares of the Company’s common stock or a combination of cash and shares of common stock at the then applicable exchange rate. The initial exchange rate was 26.4634 shares per $1,000 principal amount of Notes, representing an exchange price of approximately $37.79 per share. If certain designated events occur on or prior to October 6, 2011 and a holder elects to exchange Notes in connection with any such transaction, the Company will increase the exchange rate by a number of additional shares of common stock based on the date the transaction becomes effective and the price paid per share of common stock in the transaction, as set forth in the indenture governing the Notes. The exchange rate may also be adjusted under certain other circumstances, including the payment of cash dividends in excess of $0.29 per share of common stock. The increase in the quarterly cash dividend to $0.335 per share of common stock for 2008 resulted in an increase in the exchange rate to 26.8135 per $1,000 principal amount of Notes, effective as of December 29, 2008, the Company’s ex dividend date. The Operating Partnership may redeem the Notes, in whole or in part, at any time to preserve the Company’s status as a REIT or at any time on or after October 6, 2011 for cash at 100% of the principal amount plus accrued and unpaid interest. The holders of the Notes have the right to require the Operating Partnership to repurchase the Notes, in whole or in part, for cash on each of October 1, 2011, October 1, 2016 and October 1, 2021, or upon the occurrence of a designated event, in each case for a repurchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest. At September 30, 2009 and 2008, the Notes had a contractual interest rate of 4.5%, which resulted in interest expense for the three and nine months ended September 30, 2009 of approximately $1.2 million and $3.9 million, respectively, and for the three and nine months ended September 30, 2008 of approximately $2.0 million and $5.9 million, respectively.

On January 1, 2009, the Company adopted new accounting guidance, which requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The equity component of the convertible debt is included in the additional paid-in capital section of stockholders’ equity and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the debt security. The resulting debt discount will be accreted as additional interest expense over the non-cancelable term of the instrument. Retrospective application was required and has been reflected in all periods presented. As a result, the gain on extinguishment of debt recognized in the fourth quarter of 2008 decreased by approximately $2.3 million (or approximately $0.03 per diluted share) and additional non-cash interest expense of approximately $5.9 million was recognized during the period from the date of issuance of the Notes through December 2008, partially offset by the recognition of additional capitalized interest of approximately $2.7 million. However, the adoption did not materially change the previously reported earnings per share for the periods presented. As of September 30, 2009 and December 31, 2008, the carrying value of the equity component recognized was approximately $14.0 million.

In March 2009, the Company completed the repurchase of approximately $12.0 million face value of the Notes for approximately $6.9 million. In April 2009, the Company completed an additional repurchase of approximately $8.8 million face value of the Notes for approximately $5.7 million. The repurchase of the Notes resulted in the recognition of a gain on extinguishment of debt of approximately $7.0 million for the nine months ended September 30, 2009 (net of the write-off of approximately $1.2 million in deferred loan fees and debt discount for the nine months ended September 30, 2009), which is reflected in the accompanying consolidated statements of income.

Exchangeable senior notes, net consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Exchangeable senior notes		$	107,420			$	128,250
Unamortized debt discount(1)			(3,896	)			(6,207	)
		$	103,524			$	122,043

Secured Construction Loan

The Company’s $550.0 million secured construction loan from KeyBank, which was secured by the Center for Life Science | Boston property, was repaid in June 2009 from the proceeds received from the new mortgage loan secured by the property, along with borrowings from the Company’s unsecured line of credit (see Note 4). In connection with the repayment of the secured construction loan, the Company wrote off approximately $843,000 of deferred loan fees in the nine months ended September 30, 2009, which are reflected in the consolidated statements of income as a reduction of the gain on extinguishment of debt recognized from the repurchase of the Notes (see above).

As of September 30, 2009, principal payments due for the Company’s consolidated indebtedness (mortgage notes payable excluding the debt premium of $7.4 million, unsecured line of credit, secured term loan and the Notes excluding the debt discount of $3.9 million) were as follows (in thousands):

2009		$	1,772
2010			7,404
2011			351,039
2012			295,414
2013			25,941
Thereafter(1)			661,230
		$	1,342,800

6. Earnings Per Share

On January 1, 2009, the Company adopted new accounting guidance, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be considered in computing basic earnings per share under the two-class method. The Company has adjusted its calculation of basic and diluted earnings per share to conform to the two-class method, which also required retrospective application for all periods presented. The change in calculating basic and diluted earnings per share did not have a material effect on the amounts previously reported for the periods presented (with the exception of the amount of weighted-average basic and diluted shares utilized in the calculation).

The two-class method is an earnings allocation method for calculating earnings per share when a company’s capital structure includes either two or more classes of common stock or common stock and participating securities. Basic earnings per share under the two-class method is calculated based on dividends declared on common shares and other participating securities (“distributed earnings”) and the rights of participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends accruing during the period. The undistributed earnings are allocated to all outstanding common shares and participating securities based on the relative percentage of each security to the total number of outstanding participating securities. Basic earnings per share represents the summation of the distributed and undistributed earnings per share class divided by the total number of shares.

As of September 30, 2009, all of the Company’s participating securities (including the Units) receive dividends/distributions at an equal dividend/distribution rate per share/unit. As a result, the portion of net income allocable to the weighted-average restricted stock outstanding for the three and nine months ended September 30, 2009 and 2008 has been deducted from net income allocable to common stockholders to calculate basic earnings per share. The calculation of diluted earnings per share for the three and nine months ended September 30, 2009 and 2008 includes the outstanding Units (both vested and unvested) and restricted stock in the weighted-average shares, as well as an increase to net income allocable to common stockholders for the noncontrolling interest charge pertaining to the Units recognized during the respective period. No shares were contingently issuable upon settlement of the excess exchange value pursuant to the exchange settlement feature of the Notes (originally issued in 2006 — see Note 5) as the weighted-average common stock prices of $12.41 and $26.20 for the three months ended September 30, 2009 and 2008, respectively, and $10.70 and $24.87 for the nine months ended September 30, 2009 and 2008, respectively, did not exceed the current exchange price then in effect of $37.29 per share at September 30, 2009 and $37.47 per share at September 30, 2008, respectively. Therefore, potentially issuable shares resulting from settlement of the Notes were not included in the calculation of diluted weighted-average shares. No other shares were considered antidilutive for the three and nine months ended September 30, 2009 and 2008.

Computations of basic and diluted earnings per share (in thousands, except share data) were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
						(Revised)								(Revised)
Basic earnings per share:
Net income available to common stockholders		$	4,062			$	12,436			$	41,282			$	38,471
Less: net income allocable to unvested restricted stock			(34	)			(36	)			(380	)			(122	)
Less: distributions in excess of earnings attributable to unvested restricted stock			(60	)			(37	)			(86	)			(111	)
Net income attributable to common stockholders		$	3,968			$	12,363			$	40,816			$	38,238
Diluted earnings per share:
Net income available to common stockholders		$	4,062			$	12,436			$	41,282			$	38,471
Plus: net income attributable to noncontrolling interests of operating partnership			122				559				1,502				1,767
Net income available to common stockholders and participating securities (including the Units)		$	4,184			$	12,995			$	42,784			$	40,238
Weighted-average common shares outstanding:
Basic			97,315,601				71,513,333				88,754,885				68,995,174
Incremental shares from assumed conversion/vesting:
Unvested restricted stock			821,770				206,771				826,640				219,053
Operating partnership and LTIP units			3,152,087				3,503,714				3,281,563				3,481,816
Diluted			101,289,458				75,223,818				92,863,088				72,696,043
Basic and diluted earnings per share:
Net income per share available to common stockholders, basic and diluted:		$	0.04			$	0.17			$	0.46			$	0.55

7. Investment in Unconsolidated Partnerships

The accompanying consolidated financial statements include investments in two limited liability companies with Prudential Real Estate Investors (“PREI”), which were formed in the second quarter of 2007, and in 10165 McKellar Court, L.P. (“McKellar Court”), a limited partnership with Quidel Corporation, the tenant which occupies the McKellar Court property. One of the PREI limited liability companies, PREI II LLC, is a VIE; however, the Company is not the primary beneficiary. PREI will bear the majority of any losses. The other PREI limited liability company, PREI I LLC, does not qualify as a VIE. In addition, consolidation is not required as the Company does not control the limited liability companies. The McKellar Court partnership is a VIE; however, the Company is not the primary beneficiary. The limited partner at McKellar Court is the only tenant in the property and will bear the majority of any losses. As it does not control the limited liability companies or the partnership, the Company accounts for them under the equity method of accounting. Significant accounting policies used by the unconsolidated partnerships that own these properties are similar to those used by the Company. General information on the PREI limited liability companies and the McKellar Court partnership (each referred to in this footnote individually as a “partnership” and collectively as the “partnerships”) as of September 30, 2009 was as follows:

				Company’s				Company’s
				Ownership				Economic
Name		Partner		Interest				Interest				Date Acquired
PREI I LLC(1)		PREI			20	%			20	%		April 4, 2007
PREI II LLC(2)		PREI			20	%			20	%		April 4, 2007
McKellar Court(3)		Quidel Corporation			21	%			21	%(4)		September 30, 2004

The Company acts as the operating member or partner, as applicable, and day-to-day manager for these partnerships. The Company is entitled to receive fees for providing construction and development services (as applicable) and management services to the PREI limited liability companies. The Company earned approximately $665,000 and $2.1 million in fees for the three and nine months ended September 30, 2009, respectively, and $612,000 and $1.9 million in fees for the three and nine months ended September 30, 2008, respectively, for services provided to the PREI limited liability companies, which are reflected in tenant recoveries and other income in the consolidated statements of income.

The condensed combined balance sheets for all of the Company’s unconsolidated partnerships were as follows (in thousands):

		September 30,				December 31,
		2009				2008
Assets:
Investments in real estate, net		$	611,966			$	592,169
Cash and cash equivalents (including restricted cash)			10,132				6,757
Intangible assets, net			13,431				15,126
Other assets			18,621				16,373
Total assets		$	654,150			$	630,425
Liabilities and equity:
Mortgage notes payable		$	393,299			$	517,938
Other liabilities			24,451				24,844
Members’ equity			236,400				87,643
Total liabilities and equity		$	654,150			$	630,425
Company’s net investment in unconsolidated partnerships		$	47,747			$	18,173

On February 13, 2008, a wholly owned subsidiary of PREI I LLC entered into a secured construction loan facility with certain lenders to provide borrowings of up to approximately $245.0 million, with a maturity date of August 13, 2010, in connection with the construction of 650 East Kendall Street, a life sciences building located in Cambridge, Massachusetts. In addition, the subsidiary, at its sole discretion, may exercise two extension options, which would extend the maturity date of the secured construction loan facility to February 13, 2011 and August 13, 2011, after satisfying certain conditions and paying an extension fee based on the then current facility commitment at each extension date. Proceeds from the secured construction loan were used in part to repay a portion of the secured acquisition and interim loan facility held by the PREI limited liability companies and are being used to fund the balance of the anticipated cost to complete construction of the project. In February 2008, the subsidiary entered into an interest rate swap agreement, which was intended to have the effect of initially fixing the interest rate on up to $163.0 million of the secured construction loan facility at a weighted average rate of 4.4% through August 2010. The swap agreement had an original notional amount of $84.0 million based on the initial borrowing on the secured construction loan facility, which increases on a monthly basis at predetermined amounts as additional borrowings are made. At September 30, 2009, there were $179.8 million in outstanding borrowings on the secured construction loan facility, with a contractual interest rate of 1.8%.

During the nine months ended September 30, 2009, the Company provided approximately $32.4 million in additional funding to the PREI joint ventures pursuant to capital calls, primarily related to the refinancing of the secured acquisition and interim loan facility.

The condensed combined statements of income for the unconsolidated partnerships were as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Total revenues		$	7,542			$	7,620			$	22,870			$	12,701
Rental operations expense			2,061				1,944				6,937				4,564
Real estate taxes, insurance and ground rent			5,509				1,854				9,751				1,285
Depreciation and amortization			3,305				2,615				9,913				3,709
Interest expense, net of interest income			2,500				2,433				7,112				6,559
Total expenses			13,375				8,846				33,713				16,117
Net loss		$	(5,833	)		$	(1,226	)		$	(10,843	)		$	(3,416	)
Company’s equity in net loss of unconsolidated partnerships		$	(1,118	)		$	(208	)		$	(1,884	)		$	(338	)

8. Derivatives and Other Financial Instruments

As of September 30, 2009, the Company had three interest rate swaps with an aggregate notional amount of $400.0 million under which at each monthly settlement date the Company either (1) receives the difference between a fixed interest rate (the “Strike Rate”) and one-month LIBOR if the Strike Rate is less than LIBOR or (2) pays such difference if the Strike Rate is greater than LIBOR. One interest rate swap with a notional amount of $250.0 million hedges the Company’s secured term loan. Each of the remaining two interest rate swaps hedges the first interest payments, due on the date that is on or closest after each swap’s settlement date, associated with the amount of LIBOR-based debt equal to each swap’s notional amount. One of these interest rate swaps has a notional amount of $35.0 million (interest rate of 5.8%, including the applicable credit spread) and is currently intended to hedge interest payments associated with the Company’s unsecured line of credit. The remaining interest rate swap has a notional amount of $115.0 million (interest rate of 5.8%, including the applicable credit spread) and is also currently intended to hedge interest payments associated with the Company’s unsecured line of credit. No initial investment was made to enter into the interest rate swap agreements.

As of September 30, 2009, the Company had deferred interest costs of approximately $65.1 million in other comprehensive income related to forward starting swaps, which were settled with the corresponding counterparties in April 2009 for approximately $77.6 million. The forward starting swaps were entered into to mitigate the Company’s exposure to the variability in expected future cash flows attributable to changes in future interest rates associated with a forecasted issuance of fixed-rate debt, with interest payments for a minimum of ten years. In June 2009 the Company closed on $368.0 million in fixed-rate mortgage loans secured by its 9865 Towne Centre Drive and Center for Life Science | Boston properties (see Note 4). The deferred interest costs of $65.1 million will be amortized as additional interest expense over ten years.

The following is a summary of the terms of the interest rate swaps, the forward starting swaps, and a stock purchase warrant held by the Company and their fair-values, which are included in other assets (asset account) and derivative instruments (liability account) based on their respective balances on the accompanying consolidated balance sheets (in thousands):

																		Fair-Value(1)
		Notional																September 30,				December 31,
		Amount				Strike Rate				Effective Date				Expiration Date					2009				2008
		$	250,000				4.157	%		June 1, 2005				June 1, 2010				$	(6,304	)		$	(11,011	)
			115,000				4.673	%		October 1, 2007				August 1, 2011					(7,379	)			(9,349	)
			35,000				4.700	%		October 10, 2007				August 1, 2011					(2,265	)			(2,858	)
Interest rate swaps			400,000																(15,948	)			(23,218	)
			150,000				5.162	%		December 30, 2008				December 30, 2018					—				(34,307	)
			50,000				5.167	%		December 30, 2008				December 30, 2018					—				(11,449	)
			100,000				5.167	%		December 30, 2008				December 30, 2018					—				(22,942	)
			150,000				5.152	%		December 30, 2008				December 30, 2018					—				(34,175	)
Forward starting swaps(2)			450,000																—				(102,873	)
Other(3)			—																199			$	—
Total derivative instruments		$	850,000															$	(15,749	)		$	(126,091	)