filings.toolsItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) and (2) Financial Statements and Financial Statement Schedule
The financial statements and financial statement schedule required by this Item are included as a separate section in this annual report on Form 10-K beginning on page F-1.
| Page | |||||
| Report of Independent Registered Public Accounting Firm | 1 | ||||
| Audited Consolidated Financial Statements of Alexandria Real Estate Equities, Inc.: | |||||
| Consolidated Balance Sheets as of December 31, 2020 and 2019 | 3 | ||||
| Consolidated Financial Statements for the Years Ended December 31, 2020, 2019, and 2018: | |||||
| Consolidated Statements of Operations | 4 | ||||
| Consolidated Statements of Comprehensive Income | 5 | ||||
| Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interests | 6 | ||||
| Consolidated Statements of Cash Flows | 8 | ||||
| Notes to Consolidated Financial Statements | 10 | ||||
| Schedule III – Consolidated Financial Statement Schedule of Real Estate and Accumulated Depreciation | 53 |
(a)(3) Exhibits
| Exhibit Number | Exhibit Title | Incorporated by Reference to: | Date Filed | |||||||||||||||||
| 101.1 | The following materials from the Company’s annual report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2020 and 2019, (ii) Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018, (iv) Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interests for the years ended December 31, 2020, 2019, and 2018, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018, (vi) Notes to Consolidated Financial Statements, and (vii) Schedule III - Consolidated Financial Statement Schedule of Real Estate and Accumulated Depreciation of the Company. | N/A | Filed herewith | |||||||||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | N/A | Filed herewith |
(*) Incorporated by reference.
(1) Management contract or compensatory arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALEXANDRIA REAL ESTATE EQUITIES, INC. | |||||||||||
| Dated: | February 1, 2021 | By: | /s/ Joel S. Marcus | ||||||||
| Joel S. Marcus Executive Chairman (Principal Executive Officer) | |||||||||||
| /s/ Stephen A. Richardson | |||||||||||
| Stephen A. Richardson Co-Chief Executive Officer (Principal Executive Officer) | |||||||||||
| /s/ Peter M. Moglia | |||||||||||
| Peter M. Moglia Co-Chief Executive Officer and Co-Chief Investment Officer (Principal Executive Officer) |
S-1
KNOW ALL THOSE BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joel S. Marcus, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, if any, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent of their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ Joel S. Marcus | Executive Chairman (Principal Executive Officer) | February 1, 2021 | ||||||||||||
| Joel S. Marcus | ||||||||||||||
| /s/ Stephen A. Richardson | Co-Chief Executive Officer (Principal Executive Officer) | February 1, 2021 | ||||||||||||
| Stephen A. Richardson | ||||||||||||||
| /s/ Peter M. Moglia | Co-Chief Executive Officer and Co-Chief Investment Officer (Principal Executive Officer) | February 1, 2021 | ||||||||||||
| Peter M. Moglia | ||||||||||||||
| /s/ Dean A. Shigenaga | President and Chief Financial Officer (Principal Financial Officer) | February 1, 2021 | ||||||||||||
| Dean A. Shigenaga | ||||||||||||||
| /s/ Andres R. Gavinet | Chief Accounting Officer (Principal Accounting Officer) | February 1, 2021 | ||||||||||||
| Andres R. Gavinet | ||||||||||||||
| /s/ Steven R. Hash | Lead Director | February 1, 2021 | ||||||||||||
| Steven R. Hash | ||||||||||||||
| /s/ John L. Atkins, III | Director | January 27, 2021 | ||||||||||||
| John L. Atkins, III | ||||||||||||||
| /s/ James P. Cain | Director | January 28, 2021 | ||||||||||||
| James P. Cain | ||||||||||||||
| /s/ Maria C. Freire | Director | February 1, 2021 | ||||||||||||
| Maria C. Freire | ||||||||||||||
| /s/ Jennifer Friel Goldstein | Director | February 1, 2021 | ||||||||||||
| Jennifer Friel Goldstein | ||||||||||||||
| /s/ Richard H. Klein | Director | February 1, 2021 | ||||||||||||
| Richard H. Klein | ||||||||||||||
| /s/ James H. Richardson | Director | February 1, 2021 | ||||||||||||
| James H. Richardson | ||||||||||||||
| /s/ Michael A. Woronoff | Director | February 1, 2021 | ||||||||||||
| Michael A. Woronoff |
S-2
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Alexandria Real Estate Equities, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Alexandria Real Estate Equities, Inc. (the Company), as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and noncontrolling interests and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-1
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Recognition of acquired real estate – Purchase price accounting
| Description of the Matter | As more fully disclosed in Notes 2 and 3 to the consolidated financial statements, during 2020, the Company completed the acquisition of 55 properties for a total purchase price of $2.6 billion. The transactions were accounted for as asset acquisitions, and the purchase prices were allocated based on the relative fair values of the assets acquired (including land, buildings and improvements, and the intangible value of acquired above-market leases, acquired in-place leases, tenant relationships and other intangible assets) and liabilities assumed (including the intangible value of acquired below-market leases and other intangible liabilities). The fair value of tangible and intangible assets and liabilities is based on available comparable market information, including estimated replacement costs, rental rates, recent market transactions, and estimated cash flow projections that utilize appropriate discount and capitalization rates. Estimates of future cash flows are based on a number of factors, including the historical operating results, known and anticipated trends, and market or economic conditions, that may affect the property. Auditing the Company’s estimate of the fair value of the acquired tangible and intangible assets and liabilities involves significant estimation uncertainty due to the judgment used by management in selecting key assumptions based on recent comparable transactions or market data, which are primarily unobservable inputs, and the sensitivity of the estimates to changes in assumptions. The allocation of purchase price to the components of properties acquired could have an effect on the Company’s net income due to the useful depreciable and amortizable lives applicable to each component and the recognition and classification of the related depreciation or amortization expense in the Company’s consolidated statements of operations. | |||||||
| How we Addressed the Matter in Our Audit | Our audit procedures related to the key assumptions utilized in the Company’s purchase price accounting for acquired real estate included the following procedures, among others: We tested the design and operating effectiveness of controls over the Company’s process for determining and reviewing the key inputs and assumptions used in estimating the fair value of acquired assets and liabilities and allocating purchase price to the various components. We evaluated the incorporation of the key assumptions in the purchase price accounting model and recalculated the model’s results. To test the fair values of acquired tangible and intangible assets and liabilities used in the purchase price allocation, we performed procedures to evaluate the valuation methods and significant assumptions used by management. We evaluated the completeness and accuracy of the underlying data supporting the determination of the various inputs. Our internal valuation specialists assisted us in evaluating the methodology used by the Company and considered the consistency of the land and building values, estimated replacement costs, market rental rates, ground lease rates and discount rates with external data sources. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Los Angeles, California
February 1, 2021
F-2
Alexandria Real Estate Equities, Inc. Consolidated Balance Sheets
(In thousands, except share and per share amounts)
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Assets | |||||||||||
| Investments in real estate | $ | 18,092,372 | $ | 14,844,038 | |||||||
| Investments in unconsolidated real estate joint ventures | 332,349 | 346,890 | |||||||||
| Cash and cash equivalents | 568,532 | 189,681 | |||||||||
| Restricted cash | 29,173 | 53,008 | |||||||||
| Tenant receivables | 7,333 | 10,691 | |||||||||
| Deferred rent | 722,751 | 641,844 | |||||||||
| Deferred leasing costs | 272,673 | 270,043 | |||||||||
| Investments | 1,611,114 | 1,140,594 | |||||||||
| Other assets | 1,191,581 | 893,714 | |||||||||
| Total assets | $ | 22,827,878 | $ | 18,390,503 | |||||||
| Liabilities, Noncontrolling Interests, and Equity | |||||||||||
| Secured notes payable | $ | 230,925 | $ | 349,352 | |||||||
| Unsecured senior notes payable | 7,232,370 | 6,044,127 | |||||||||
| Unsecured senior line of credit and commercial paper | 99,991 | 384,000 | |||||||||
| Accounts payable, accrued expenses, and other liabilities | 1,669,832 | 1,320,268 | |||||||||
| Dividends payable | 150,982 | 126,278 | |||||||||
| Total liabilities | 9,384,100 | 8,224,025 | |||||||||
| Commitments and contingencies | |||||||||||
| Redeemable noncontrolling interests | 11,342 | 12,300 | |||||||||
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity: | |||||||||||
| Common stock, $0.01 par value per share, 200,000,000 shares authorized as of December 31, 2020 and 2019; 136,690,329 and 120,800,315 shares issued and outstanding as of December 31, 2020 and 2019, respectively | 1,367 | 1,208 | |||||||||
| Additional paid-in capital | 11,730,970 | 8,874,367 | |||||||||
| Accumulated other comprehensive loss | (6,625) | (9,749) | |||||||||
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity | 11,725,712 | 8,865,826 | |||||||||
| Noncontrolling interests | 1,706,724 | 1,288,352 | |||||||||
| Total equity | 13,432,436 | 10,154,178 | |||||||||
| Total liabilities, noncontrolling interests, and equity | $ | 22,827,878 | $ | 18,390,503 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Alexandria Real Estate Equities, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Income from rentals | $ | 1,878,208 | $ | 1,516,864 | $ | 1,314,781 | |||||||||||
| Other income | 7,429 | 14,432 | 12,678 | ||||||||||||||
| Total revenues | 1,885,637 | 1,531,296 | 1,327,459 | ||||||||||||||
| Expenses: | |||||||||||||||||
| Rental operations | 530,224 | 445,492 | 381,120 | ||||||||||||||
| General and administrative | 133,341 | 108,823 | 90,405 | ||||||||||||||
| Interest | 171,609 | 173,675 | 157,495 | ||||||||||||||
| Depreciation and amortization | 698,104 | 544,612 | 477,661 | ||||||||||||||
| Impairment of real estate | 48,078 | 12,334 | 6,311 | ||||||||||||||
| Loss on early extinguishment of debt | 60,668 | 47,570 | 1,122 | ||||||||||||||
| Total expenses | 1,642,024 | 1,332,506 | 1,114,114 | ||||||||||||||
| Equity in earnings of unconsolidated real estate joint ventures | 8,148 | 10,136 | 43,981 | ||||||||||||||
| Investment income | 421,321 | 194,647 | 136,763 | ||||||||||||||
| Gain on sales of real estate – rental properties | 154,089 | 474 | 8,704 | ||||||||||||||
| Net income | 827,171 | 404,047 | 402,793 | ||||||||||||||
| Net income attributable to noncontrolling interests | (56,212) | (40,882) | (23,481) | ||||||||||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders | 770,959 | 363,165 | 379,312 | ||||||||||||||
| Dividends on preferred stock | — | (3,204) | (5,060) | ||||||||||||||
| Preferred stock redemption charge | — | (2,580) | (4,240) | ||||||||||||||
| Net income attributable to unvested restricted stock awards | (10,168) | (6,386) | (6,029) | ||||||||||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 760,791 | $ | 350,995 | $ | 363,983 | |||||||||||
| Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders: | |||||||||||||||||
| Basic | $ | 6.03 | $ | 3.13 | $ | 3.53 | |||||||||||
| Diluted | $ | 6.01 | $ | 3.12 | $ | 3.52 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Alexandria Real Estate Equities, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income | $ | 827,171 | $ | 404,047 | $ | 402,793 | |||||||||||
| Other comprehensive income (loss) | |||||||||||||||||
| Unrealized gains (losses) on interest rate hedge agreements: | |||||||||||||||||
| Unrealized interest rate hedge (losses) gains during the period | — | (1,763) | 1,622 | ||||||||||||||
| Reclassification of amortization to interest expense included in net income | — | (1,777) | (4,941) | ||||||||||||||
| Reclassification of losses related to terminated interest rate hedge instruments to interest expense included in net income | — | 1,702 | — | ||||||||||||||
| Unrealized gains (losses) on interest rate hedge agreements, net | — | (1,838) | (3,319) | ||||||||||||||
| Unrealized gains (losses) on foreign currency translation: | |||||||||||||||||
| Unrealized foreign currency translation gains (losses) arising during the period | 3,124 | 2,524 | (7,369) | ||||||||||||||
| Unrealized gains (losses) on foreign currency translation, net | 3,124 | 2,524 | (7,369) | ||||||||||||||
| Total other comprehensive income (loss) | 3,124 | 686 | (10,688) | ||||||||||||||
| Comprehensive income | 830,295 | 404,733 | 392,105 | ||||||||||||||
| Less: comprehensive income attributable to noncontrolling interests | (56,212) | (40,882) | (23,481) | ||||||||||||||
| Comprehensive income attributable to Alexandria Real Estate Equities, Inc.’s stockholders | $ | 774,083 | $ | 363,851 | $ | 368,624 |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Alexandria Real Estate Equities, Inc.
Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interests
(Dollars in thousands)
| Alexandria Real Estate Equities, Inc.’s Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7.00% Series D Cumulative Convertible Preferred Stock | Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Noncontrolling Interests | Total Equity | Redeemable Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2017 | $ | 74,386 | 99,783,686 | $ | 998 | $ | 5,824,258 | $ | — | $ | 50,024 | $ | 521,994 | $ | 6,471,660 | $ | 11,509 | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 379,312 | — | 22,618 | 401,930 | 863 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | — | (10,688) | — | (10,688) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of net unrealized gains on non-real estate investments upon adoption of new ASU on financial instruments on January 1, 2018 | — | — | — | — | 140,521 | (49,771) | — | 90,750 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from and sales of noncontrolling interests | — | — | — | 257 | — | — | 27,161 | 27,418 | 857 | |||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of noncontrolling interests | — | — | — | — | — | — | — | — | (1,597) | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (29,810) | (29,810) | (846) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | 10,915,120 | 109 | 1,304,531 | — | — | — | 1,304,640 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance pursuant to stock plan | — | 313,010 | 3 | 45,975 | — | — | — | 45,978 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of 7.00% Series D preferred stock | (10,050) | — | — | 314 | (4,240) | — | — | (13,976) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($3.73 per share) | — | — | — | — | (398,914) | — | — | (398,914) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on preferred stock ($1.75 per share) | — | — | — | — | (5,060) | — | — | (5,060) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of distributions in excess of earnings | — | — | — | 111,619 | (111,619) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2018 | 64,336 | 111,011,816 | 1,110 | 7,286,954 | — | (10,435) | 541,963 | 7,883,928 | 10,786 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 363,165 | — | 40,007 | 403,172 | 875 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income | — | — | — | — | — | 686 | — | 686 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from and sales of noncontrolling interests | — | — | — | 381,162 | — | — | 753,777 | 1,134,939 | 1,469 | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (47,395) | (47,395) | (830) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | 8,723,076 | 87 | 1,216,358 | — | — | — | 1,216,445 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance pursuant to stock plan | — | 666,836 | 7 | 67,906 | — | — | — | 67,913 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Taxes paid related to net settlement of equity awards | — | (179,008) | (2) | (25,475) | — | — | — | (25,477) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of 7.00% Series D preferred stock | (6,875) | — | — | 215 | (2,580) | — | — | (9,240) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of 7.00% Series D preferred stock | (57,461) | 577,595 | 6 | 57,355 | — | — | — | (100) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($4.00 per share) | — | — | — | — | (463,964) | — | — | (463,964) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on preferred stock ($1.3125 per share) | — | — | — | — | (3,204) | — | — | (3,204) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect of adjustment upon adoption of lease ASUs on January 1, 2019 | — | — | — | — | (3,525) | — | — | (3,525) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of distributions in excess of earnings | — | — | — | (110,108) | 110,108 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | — | 120,800,315 | $ | 1,208 | $ | 8,874,367 | $ | — | $ | (9,749) | $ | 1,288,352 | $ | 10,154,178 | $ | 12,300 |
F-6
Alexandria Real Estate Equities, Inc.
Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interests (continued)
(Dollars in thousands)
| Alexandria Real Estate Equities, Inc.’s Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Noncontrolling Interests | Total Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | 120,800,315 | $ | 1,208 | $ | 8,874,367 | $ | — | $ | (9,749) | $ | 1,288,352 | $ | 10,154,178 | $ | 12,300 | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 770,959 | — | 55,309 | 826,268 | 903 | ||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income | — | — | — | — | 3,124 | — | 3,124 | — | ||||||||||||||||||||||||||||||||||||||||||
| Contributions from and sales of noncontrolling interests | — | — | 267,432 | — | — | 449,726 | 717,158 | 281 | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to and redemption of noncontrolling interests | — | — | — | — | — | (86,663) | (86,663) | (2,142) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 15,337,916 | 153 | 2,315,709 | — | — | — | 2,315,862 | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance pursuant to stock plan | 688,599 | 7 | 83,992 | — | — | — | 83,999 | — | ||||||||||||||||||||||||||||||||||||||||||
| Taxes paid related to net settlement of equity awards | (136,501) | (1) | (21,321) | — | — | — | (21,322) | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($4.24 per share) | — | — | — | (557,684) | — | — | (557,684) | — | ||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect of adjustment upon adoption of credit loss ASU on January 1, 2020 | — | — | — | (2,484) | — | — | (2,484) | — | ||||||||||||||||||||||||||||||||||||||||||
| Reclassification of distributions in excess of earnings | — | — | 210,791 | (210,791) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 136,690,329 | $ | 1,367 | $ | 11,730,970 | $ | — | $ | (6,625) | $ | 1,706,724 | $ | 13,432,436 | $ | 11,342 |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
| Alexandria Real Estate Equities, Inc. Consolidated Statements of Cash Flows (In thousands) | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Operating Activities | |||||||||||||||||
| Net income | $ | 827,171 | $ | 404,047 | $ | 402,793 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 698,104 | 544,612 | 477,661 | ||||||||||||||
| Impairment of real estate | 48,078 | 12,334 | 6,311 | ||||||||||||||
| Gain on sales of real estate | (154,089) | (474) | (8,704) | ||||||||||||||
| Loss on early extinguishment of debt | 60,668 | 47,570 | 1,122 | ||||||||||||||
| Equity in earnings of unconsolidated real estate joint ventures | (8,148) | (10,136) | (43,981) | ||||||||||||||
| Distributions of earnings from unconsolidated real estate joint ventures | 5,908 | 2,796 | 430 | ||||||||||||||
| Amortization of loan fees | 10,494 | 9,105 | 10,271 | ||||||||||||||
| Amortization of debt premiums | (3,555) | (3,777) | (2,406) | ||||||||||||||
| Amortization of acquired above- and below-market leases | (57,244) | (29,813) | (21,938) | ||||||||||||||
| Deferred rent | (96,676) | (104,235) | (93,883) | ||||||||||||||
| Stock compensation expense | 43,502 | 43,640 | 35,019 | ||||||||||||||
| Investment income | (421,321) | (194,647) | (136,763) | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Tenant receivables | 2,804 | (897) | 435 | ||||||||||||||
| Deferred leasing costs | (61,067) | (54,455) | (57,088) | ||||||||||||||
| Other assets | (10,997) | (20,825) | (20,849) | ||||||||||||||
| Accounts payable, accrued expenses, and other liabilities | (1,122) | 39,012 | 21,909 | ||||||||||||||
| Net cash provided by operating activities | 882,510 | 683,857 | 570,339 | ||||||||||||||
| Investing Activities | |||||||||||||||||
| Proceeds from sales of real estate | 747,020 | 6,619 | 20,190 | ||||||||||||||
| Additions to real estate | (1,445,171) | (1,224,541) | (927,168) | ||||||||||||||
| Purchases of real estate | (2,570,693) | (2,259,778) | (1,037,180) | ||||||||||||||
| Change in escrow deposits | 7,408 | (18,107) | (2,000) | ||||||||||||||
| Acquisitions of interest in unconsolidated real estate joint ventures | — | — | (35,922) | ||||||||||||||
| Investments in unconsolidated real estate joint ventures | (3,444) | (102,081) | (116,008) | ||||||||||||||
| Return of capital from unconsolidated real estate joint ventures | 20,225 | 14 | 68,592 | ||||||||||||||
| Additions to non-real estate investments | (174,655) | (190,778) | (235,943) | ||||||||||||||
| Sales of non-real estate investments | 141,149 | 147,332 | 103,679 | ||||||||||||||
| Net cash used in investing activities | $ | (3,278,161) | $ | (3,641,320) | $ | (2,161,760) |
F-8
| Alexandria Real Estate Equities, Inc. Consolidated Statements of Cash Flows (In thousands) | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Financing Activities | |||||||||||||||||
| Borrowings from secured notes payable | $ | — | $ | — | $ | 17,784 | |||||||||||
| Repayments of borrowings from secured notes payable | (84,104) | (306,199) | (156,888) | ||||||||||||||
| Payment for the defeasance of secured note payable | (32,865) | — | — | ||||||||||||||
| Proceeds from issuance of unsecured senior notes payable | 1,697,651 | 2,721,169 | 899,321 | ||||||||||||||
| Repayments of unsecured senior notes payable | (500,000) | (950,000) | — | ||||||||||||||
| Borrowings from unsecured senior line of credit | 2,700,000 | 5,056,000 | 4,741,000 | ||||||||||||||
| Repayments of borrowings from unsecured senior line of credit | (3,084,000) | (4,880,000) | (4,583,000) | ||||||||||||||
| Proceeds from issuance under commercial paper program | 23,539,400 | 2,233,000 | — | ||||||||||||||
| Repayments of borrowings from commercial paper program | (23,439,400) | (2,233,000) | — | ||||||||||||||
| Repayments of borrowings from unsecured senior bank term loan | — | (350,000) | (200,000) | ||||||||||||||
| Premium paid for early extinguishment of debt | (54,385) | (41,351) | — | ||||||||||||||
| Payments of loan fees | (32,309) | (27,182) | (19,292) | ||||||||||||||
| Taxes paid related to net settlement of equity awards | (21,322) | (25,477) | — | ||||||||||||||
| Repurchase of 7.00% Series D cumulative convertible preferred stock | — | (9,240) | (13,976) | ||||||||||||||
| Proceeds from issuance of common stock | 2,315,862 | 1,216,445 | 1,293,301 | ||||||||||||||
| Dividends on common stock | (532,980) | (447,029) | (380,632) | ||||||||||||||
| Dividends on preferred stock | — | (4,141) | (5,207) | ||||||||||||||
| Contributions from and sales of noncontrolling interests | 367,613 | 1,022,712 | 28,275 | ||||||||||||||
| Distributions to and purchases of noncontrolling interests | (88,805) | (48,225) | (32,253) | ||||||||||||||
| Net cash provided by financing activities | 2,750,356 | 2,927,482 | 1,588,433 | ||||||||||||||
| Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash | 311 | 540 | (2,068) | ||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 355,016 | (29,441) | (5,056) | ||||||||||||||
| Cash, cash equivalents, and restricted cash as of the beginning of period | 242,689 | 272,130 | 277,186 | ||||||||||||||
| Cash, cash equivalents, and restricted cash as of the end of period | $ | 597,705 | $ | 242,689 | $ | 272,130 | |||||||||||
| Supplemental Disclosure and Non-Cash Investing and Financing Activities: | |||||||||||||||||
| Cash paid during the period for interest, net of interest capitalized | $ | 161,351 | $ | 146,165 | $ | 127,093 | |||||||||||
| Accrued construction for current-period additions to real estate | $ | 275,454 | $ | 220,773 | $ | 244,147 | |||||||||||
| Assumption of secured notes payable in connection with purchase of properties | $ | — | $ | (28,200) | $ | — | |||||||||||
| Right-of-use asset | $ | 87,554 | $ | 269,189 | $ | — | |||||||||||
| Lease liability | $ | (87,554) | $ | (275,175) | $ | — | |||||||||||
| Payable for purchase of real estate | $ | — | $ | — | $ | (65,000) | |||||||||||
| Contribution of assets from real estate joint venture partner | $ | 350,000 | $ | 115,167 | $ | — | |||||||||||
| Issuance of noncontrolling interest to joint venture partner | $ | (292,930) | $ | — | $ | — | |||||||||||
| Issuance of common stock for conversion of 7.00% Series D preferred stock | $ | — | $ | 57,461 | $ | — |
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Alexandria Real Estate Equities, Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BASIS OF PRESENTATION
Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500® urban office REIT, is the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations. As used in this annual report on Form 10-K, references to the “Company,” “Alexandria,” “ARE,” “we,” “us,” and “our” refer to Alexandria Real Estate Equities, Inc. and its consolidated subsidiaries. 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.
Any references to our market capitalization, number or quality of buildings or tenants, quality of location, square footage, number of leases, or occupancy percentage, and any amounts derived from these values in these notes to consolidated financial statements are unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
On an ongoing basis, as circumstances indicate the need for reconsideration, we evaluate each legal entity that is not wholly owned by us in accordance with the consolidation guidance. 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. To fall within the scope of the consolidation guidance, an entity must meet both of the following criteria:
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The entity has a legal structure that 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
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We have a variable interest in the legal entity – i.e., 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 does not meet both criteria above, we apply other accounting literature, such as the cost or equity method of accounting. If an entity does meet both criteria above, we evaluate such entity for consolidation under either the variable interest model if the legal entity meets any of the following characteristics to qualify as a VIE, or under the voting model for all other legal entities that are not VIEs.
A legal entity is determined to be a VIE if it has any of the following three characteristics:
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The entity does not have sufficient equity to finance its activities without additional subordinated financial support;
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The entity is established with non-substantive voting rights (i.e., the entity deprives the majority economic interest holder(s) of voting rights); or
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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:
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The power, through voting rights or similar rights, to direct the activities of the entity that most significantly influence the entity’s economic performance, as evidenced by:
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Substantive participating rights in day-to-day management of the entity’s activities; or
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Substantive kick-out rights over the party responsible for significant decisions;
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The obligation to absorb the entity’s expected losses; or
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The right to receive the entity’s expected residual returns.
Our real estate joint ventures consist of limited partnerships or limited liability companies. For an entity structured as a limited partnership or a limited liability company, our evaluation of whether the equity holders (equity partners other than the general partner or the managing member of a joint venture) lack the characteristics of a controlling financial interest includes the evaluation 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 influence the entity’s economic performance.
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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 that the 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.
F-10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 influence the VIE’s economic performance (power), and (ii) we have the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE (benefits). We consolidate VIEs whenever we determine that we are the primary beneficiary. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements for information on specific joint ventures that qualify as VIEs. If we have a variable interest in a VIE but 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 (i.e., insufficiency of equity, existence of non-substantive voting rights, or lack of a 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 that other equity holders do not have substantive participating rights. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements 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.
Reportable segment
We are engaged in the business of providing space for lease to the life science, technology, and agtech industries. Our properties are similar in that they provide space for lease to the aforementioned industries, consist of improvements that are generic and reusable, are primarily located in AAA urban innovation cluster locations, and have similar economic characteristics. Our chief operating decision makers review financial information for our entire consolidated operations when making decisions related to assessing our operating performance, and review financial information for our individual properties when determining how to allocate resources related to capital expenditures. We have aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities, including the fact that they are operated using consistent business strategies, are typically located in major metropolitan areas, and have similar tenant mixes. The financial information disclosed herein represents all of the financial information related to our one reportable segment.
Investments in real estate
Evaluation of business combination or asset acquisition
We evaluate each acquisition of real estate or in-substance real estate (including equity interests in entities that predominantly hold real estate assets) to determine whether the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. An acquisition of an integrated set of assets and activities that does not meet the definition of a business is accounted for as an asset acquisition. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:
-
Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or
-
The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction).
An acquired process is considered substantive if:
-
The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable, and experienced in performing the process;
-
The process cannot be replaced without significant cost, effort, or delay; or
-
The process is considered unique or scarce.
F-11
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Generally, our acquisitions of real estate or in-substance real estate do not meet the definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings, and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort, or delay. When evaluating acquired service or management contracts, we consider the nature of the services performed, the terms of the contract relative to similar arm’s-length contracts, and the availability of comparable vendors in evaluating whether the acquired contract constitutes a substantive process.
Recognition of real estate acquired
We evaluate each acquisition of real estate or in-substance real estate (including equity interests in entities that predominantly hold real estate assets) to determine whether the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. An acquisition of an integrated set of assets and activities that does not meet the definition of a business is accounted for as an asset acquisition.
For acquisitions of real estate or in-substance real estate that are accounted for as business combinations, we allocate the acquisition consideration (excluding acquisition costs) to the assets acquired, liabilities assumed, noncontrolling interests, and previously existing ownership interests at fair value as of the acquisition date. Assets include intangible assets such as tenant relationships, acquired in-place leases, and favorable intangibles associated with in-place leases in which we are the lessor. Liabilities include unfavorable intangibles associated with in-place leases in which we are the lessor. In addition, for acquired in-place finance or operating leases in which we are the lessee, acquisition consideration is allocated to lease liabilities and related right-of-use assets, adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms. Any excess (deficit) of the consideration transferred relative to the fair value of the net assets acquired is accounted for as goodwill (bargain purchase gain). Acquisition costs related to business combinations are expensed as incurred.
Generally, we expect that acquisitions of real estate or in-substance real estate will not meet the definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings, and related intangible assets). The accounting model for asset acquisitions is similar to the accounting model for business combinations, except that the acquisition consideration (including acquisition costs) is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Any excess (deficit) of the consideration transferred relative to the sum of the fair value of the assets acquired and liabilities assumed is allocated to the individual assets and liabilities based on their relative fair values. As a result, asset acquisitions do not result in the recognition of goodwill or a bargain purchase gain. Incremental and external direct acquisition costs (such as legal and other third-party services) are capitalized.
We exercise judgment to determine the key assumptions used to allocate the purchase price of real estate acquired among its components. The allocation of the consideration to the various components of properties acquired during the year can have an effect on our net income due to the useful depreciable and amortizable lives applicable to each component and the recognition of the related depreciation and amortization expense in our consolidated statements of operations. We apply judgment in utilizing available comparable market information to assess relative fair value. We assess the relative fair values of tangible and intangible assets and liabilities based on available comparable market information, including estimated replacement costs, rental rates, and recent market transactions. In addition, we may use estimated cash flow projections that utilize appropriate discount and capitalization rates. Estimates of future cash flows are based on a number of factors, including the historical operating results, known and anticipated trends, and market/economic conditions that may affect the property.
The value of tangible assets acquired is based upon our estimation of fair 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. If there is a bargain fixed-rate renewal option for the period beyond the noncancelable lease term of an in-place lease, we evaluate intangible 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 the option in determining the intangible value of such lease and its related amortization period. We also recognize the relative 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.
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 respective ground lease term, estimated useful life, or up to 40 years, for buildings and building improvements; estimated life, or up to 20 years, for land improvements; the respective lease term or estimated useful life for tenant improvements; and the shorter of the lease term or estimated useful life for equipment. The values of acquired in-place leases and associated favorable intangibles (i.e., acquired above-market leases) are classified in other assets in our consolidated balance sheets and are amortized over the remaining terms of the related leases as a reduction of income from rentals in our consolidated statements of operations. The values of unfavorable intangibles (i.e., acquired below-market leases) associated with acquired in-place leases are classified in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets and are amortized over the remaining terms of the related leases as an increase in income from rentals in our statements of operations.
F-12
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalized project costs
We capitalize project costs, including pre-construction costs, interest, property taxes, insurance, and other costs directly related and essential to the development, redevelopment, pre-construction, or construction of a project. Capitalization of development, redevelopment, pre-construction, and construction costs is required while activities are ongoing to prepare an asset for its intended use. Fluctuations in our development, redevelopment, pre-construction, 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, pre-construction, 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.
Real estate sales
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 a 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 operations, 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 a discontinued operation.
We recognize gains/losses on real estate sales in accordance with the accounting standard on the derecognition of nonfinancial assets arising from contracts with noncustomers. Our ordinary output activities consist of the leasing of space to our tenants in our operating properties, not the sales of real estate. Therefore, sales of real estate (in which we are the seller) qualify as contracts with noncustomers. In our transactions with noncustomers, we apply certain recognition and measurement principles consistent with our method of recognizing revenue arising from contracts with customers. Derecognition of the asset is based on the transfer of control. If a real estate sales contract includes our ongoing involvement with the property, then we evaluate each promised good or service under the contract to determine whether it represents a separate performance obligation, constitutes a guarantee, or prevents the transfer of control. If a good or service is considered a separate performance obligation, an allocated portion of the transaction price is recognized as revenue as we transfer the related good or service to the buyer.
The recognition of gain or loss on the sale of a partial interest also depends on whether we retain a controlling or noncontrolling interest in the property. If we retain a controlling interest in the property upon completion of the sale, we continue to reflect the asset at its book value, record a noncontrolling interest for the book value of the partial interest sold, and recognize additional paid-in capital for the difference between the consideration received and the partial interest at book value. Conversely, if we retain a noncontrolling interest upon completion of the sale of a partial interest of real estate, we would recognize a gain or loss as if 100% of the real estate were sold.
Impairment of long-lived assets
Prior to and subsequent to the end of each quarter, we review current activities and changes in the business conditions of all of our long-lived assets to determine the existence of any triggering events or impairment indicators requiring an impairment analysis. If triggering events or impairment indicators are identified, we review an estimate of the future undiscounted cash flows, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.
F-13
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-lived assets to be held and used, including our rental properties, CIP, land held for development, right-of-use assets related to operating leases in which we are the lessee, 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 and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Triggering events or impairment indicators for long-lived assets to be held and used are assessed by project and include significant fluctuations in estimated net operating income, 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 asset, 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 charge is not required to be recognized, the recognition of depreciation or amortization 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 asset is expected to be held and used. We may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives.
We use the held for sale impairment model for our properties classified as held for sale. The held for sale impairment model is different from the held and used impairment model. Under the held for sale impairment model, an impairment charge 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 and used to require the recognition of an impairment charge upon classification as held for sale.
International operations
In addition to operating properties in the U.S., we have three operating properties in Canada and one operating property in China. The functional currency for our subsidiaries operating in the U.S. is the U.S. dollar. The functional currencies for our foreign subsidiaries are the local currencies in each respective country. The assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect as of the financial statement date. Revenue and expense accounts of our foreign subsidiaries are translated using the weighted-average exchange rate for the periods presented. Gains or losses resulting from the translation are classified in accumulated other comprehensive income as a separate component of total equity and are excluded from net income.
Whenever a foreign investment meets the criteria for classification as held for sale, we evaluate the recoverability of the investment under the held for sale impairment model. We may recognize an impairment charge if the carrying amount of the investment exceeds its fair value less cost to sell. In determining an investment’s carrying amount, we consider its net book value and any cumulative unrealized foreign currency translation adjustment related to the investment.
The appropriate amounts of foreign exchange rate gains or losses classified in accumulated other comprehensive income are reclassified to net income when realized upon the sale of our investment or upon the complete or substantially complete liquidation of our investment.
Investments
We hold investments in publicly traded companies and privately held entities primarily involved in the life science, technology, and agtech industries. As a REIT, we generally limit our ownership of each individual entity’s voting stock to less than 10%.
Our equity investments (except those accounted for under the equity method and those that result in consolidation of the investee) are measured as follows:
-
Investments in publicly traded companies are classified as investments with readily determinable fair values and are presented at fair value in our consolidated balance sheets, with changes in fair value recognized in net income. The fair values for our investments in publicly traded companies are determined based on sales prices or quotes available on securities exchanges.
-
Investments in privately held entities without readily determinable fair values fall into two categories:
-
Investments in privately held entities that report NAV per share, such as our privately held investments in limited partnerships, are presented at fair value using NAV as a practical expedient, with changes in fair value recognized in net income. We use NAV per share reported by limited partnerships generally without adjustment, unless we are aware of information indicating that the NAV reported by a limited partnership does not accurately reflect the fair value of the investment at our reporting date. We disclose the timing of liquidation of an investee’s assets and the date when redemption restrictions will lapse (or indicate if this timing is unknown) if the investee has communicated this information to us or has announced it publicly.
F-14
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- Investments in privately held entities that do not report NAV per share are accounted for using a measurement alternative under which these investments are measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income.
For investments in privately held entities that do not report NAV per share, an observable price arises from an orderly transaction for an identical or similar investment of the same issuer, which is observed by an investor without expending undue cost and effort. Observable price changes result from, among other things, equity transactions of the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions related to the same issuer. To determine whether these transactions are indicative of an observable price change, we evaluate, among other factors, whether these transactions have similar rights and obligations, including voting rights, distribution preferences, and conversion rights to the investments we hold.
We monitor investments in privately held entities that do not report NAV per share throughout the year for new developments, including operating results, prospects and results of clinical trials, new product initiatives, new collaborative agreements, capital-raising events, and merger and acquisition activities. These investments are evaluated on the basis of a qualitative assessment for indicators of impairment by monitoring the presence of the following triggering events or impairment indicators: (i) a significant deterioration in the earnings performance, asset quality, or business prospects of the investee; (ii) a significant adverse change in the regulatory, economic, or technological environment of the investee, (iii) a significant adverse change in the general market condition, including the research and development of technology and products that the investee is bringing or attempting to bring to the market, or (iv) significant concerns about the investee’s ability to continue as a going concern. If such indicators are present, we are required to estimate the investment’s fair value and immediately recognize an impairment charge in an amount equal to the investment’s carrying value in excess of its estimated fair value.
Investments in privately held entities are accounted for under the equity method, unless our interest in the entity is deemed to be so minor that we have virtually no influence over the entity’s operating and financial policies. Under the equity method of accounting, we initially recognize our investment 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. We had no non-real estate investments accounted for under the equity method as of December 31, 2020.
We recognize both realized and unrealized gains and losses in our consolidated statements of operations, classified within investment income. Unrealized gains and losses represent changes in fair value for investments in publicly traded companies, changes in NAV, as a practical expedient to estimate fair value, for investments in privately held entities that report NAV per share, and observable price changes on our investments in privately held entities that do not report NAV per share. Impairments are realized losses, which result in an adjusted cost, and represent charges to reduce the carrying values of investments in privately held entities that do not report NAV per share to their estimated fair value. Realized gains and losses represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost.
In April 2019, the FASB issued an accounting standard that amends the financial instruments standard by clarifying that all private investments that do not report NAV per share and are adjusted under the measurement alternative (for observable price changes and impairments) described above represent nonrecurring fair value measurement adjustments and therefore require applicable fair value disclosures, including disclosures about the level of the fair value hierarchy within which the fair value measurements are categorized. The accounting standard became effective for us and was adopted on January 1, 2020. Beginning in 2020, pursuant to the requirements of this new standard, we provide incremental fair value disclosures related to our investments in privately held entities that do not report NAV per share in Note 9 – “Fair value measurements” to our consolidated financial statements.
Revenues
The table below provides detail of our consolidated total revenues for the years ended December 31, 2020 and 2019 (in thousands):
| Year Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Income from rentals: | ||||||||||||||
| Revenues subject to the lease accounting standard: | ||||||||||||||
| Operating leases | $ | 1,854,427 | $ | 1,465,692 | ||||||||||
| Direct financing lease | 2,469 | 2,421 | ||||||||||||
| Revenues subject to the lease accounting standard | 1,856,896 | 1,468,113 | ||||||||||||
| Revenues subject to the revenue recognition accounting standard | 21,312 | 48,751 | ||||||||||||
| Income from rentals | 1,878,208 | 1,516,864 | ||||||||||||
| Other income | 7,429 | 14,432 | ||||||||||||
| Total revenues | $ | 1,885,637 | $ | 1,531,296 |
F-15
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
During the year ended December 31, 2020, revenues that were subject to the lease accounting standard aggregated $1.9 billion and represented 98.5% of our total revenues. During the year ended December 31, 2020, our total revenues also included $28.7 million, or 1.5%, subject to other accounting guidance. Our other income consisted primarily of construction management fees and interest income earned during the year ended December 31, 2020. For a detailed discussion related to our revenue streams, refer to the “Lease accounting” and “Recognition of revenue arising from contracts with customers” sections within this Note 2 to our consolidated financial statements.
Lease accounting
Transition
On January 1, 2019, we adopted a new lease accounting standard that sets principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors). The new lease accounting standard required the use of the modified retrospective transition method. Upon adoption of the new lease accounting standard, we elected the following practical expedients and accounting policies provided by this lease standard:
-
Package of practical expedients – required us not to reevaluate our existing or expired leases as of January 1, 2019, under the new lease accounting standard.
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Optional transition method practical expedient – required us to apply the new lease accounting standard prospectively from the adoption date of January 1, 2019.
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Single component accounting policy – required us to account for lease and nonlease components within a lease under the new lease accounting standard if certain criteria are met.
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Land easements practical expedient – required us to continue to account for land easements existing as of January 1, 2019, under the accounting standards applied to them prior to January 1, 2019.
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Short-term lease accounting policy – required us not to record the related lease liabilities and right-of-use assets for operating leases in which we are the lessee with a term of 12 months or less.
Upon adoption of the new lease accounting standard, we elected the package of practical expedients and the optional transition method, which permitted January 1, 2019, to be our initial application date. Our election of the package of practical expedients and the optional transition method allowed us not to reassess:
-
Whether any contracts effective prior to January 1, 2019, were leases or contained leases.** This practical expedient was primarily applicable to entities that had contracts containing embedded leases. As of December 31, 2018, we had no such contracts; therefore, this practical expedient had no effect on us.
-
The lease classification for any leases that commenced prior to January 1, 2019.** Our election of the package of practical expedients required us not to revisit the classification of our leases that commenced prior to January 1, 2019. For example, all of our leases that were classified as operating leases in accordance with the lease accounting standards in effect prior to January 1, 2019, continued to be classified as operating leases after adoption of the new lease standard.
-
Previously capitalized initial direct costs for any leases that commenced prior to January 1, 2019.** Our election of the package of practical expedients and the optional transition method required us not to reassess whether initial direct leasing costs capitalized prior to the adoption of the new lease accounting standard in connection with the leases that commenced prior to January 1, 2019, qualified for capitalization under the new lease accounting standard.
We applied the package of practical expedients consistently to all leases (i.e., in which we were the lessee or the lessor) that commenced before January 1, 2019. The election of this package permitted us to “run off” our leases that commenced before January 1, 2019, for the remainder of their lease terms and to apply the new lease accounting standard to leases commencing or modified after January 1, 2019.
For our leases that commenced prior to January 1, 2019, under the package of practical expedients and optional transition method, we were not required to reassess whether initial direct leasing costs capitalized prior to the adoption of the new lease accounting standard in connection with such leases qualified for capitalization under the new lease accounting standard. Therefore, we continue to amortize these initial direct leasing costs over their respective lease terms.
On January 1, 2019, as required by the new lease accounting standard, we recognized a cumulative adjustment to retained earnings aggregating $3.5 million to write off initial direct leasing costs that were capitalized in connection with leases that were executed but had not commenced before January 1, 2019. These costs were capitalized in accordance with the lease accounting standards existing prior to January 1, 2019, and would not qualify for capitalization under the new lease accounting standard.
F-16
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Under the package of practical expedients, all of our operating leases existing as of January 1, 2019, in which we were the lessee, continued to be classified as operating leases subsequent to the adoption of the new lease accounting standard. In accordance with the lease accounting standard adopted on January 1, 2019, we classified the present value of the remaining future rental payments associated with these operating leases in our consolidated balance sheets. Consequently, on January 1, 2019, we recognized a lease liability aggregating $218.7 million, which represented the present value of the remaining future rental payments aggregating $590.3 million related to our ground and office leases, in which we were the lessee, existing as of January 1, 2019.
This liability was classified within accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets and included approximately $27.0 million reclassified out of the deferred rent liabilities balance in accordance with the new lease standard. We have also recognized a corresponding right-of-use asset, which was classified within other assets in our consolidated balance sheets. The present value of the remaining lease payments was calculated for each operating lease existing as of January 1, 2019, in which we were the lessee by using each respective remaining lease term and a corresponding estimated incremental borrowing rate. The incremental borrowing rate is the interest rate that we estimated we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments.
Subsequent application of the new lease accounting standard
Definition of a lease
When we enter into a contract or amend an existing contract, we evaluate whether the contract meets the definition of a lease. To meet the definition of a lease, the contract must meet all three criteria:
(i)One party (lessor) must hold an identified asset;
(ii)The counterparty (lessee) must have the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of the contract; and
(iii)The counterparty (lessee) must have the right to direct the use of the identified asset throughout the period of the contract.
Lease classification
The criteria to determine whether a lease should be accounted for as a finance lease for lessees or a sales-type lease for lessors include any of the following:
(i)Ownership is transferred from lessor to lessee by the end of the lease term;
(ii)An option to purchase is reasonably certain to be exercised;
(iii)The lease term is for the major part of the underlying asset’s remaining economic life;
(iv)The present value of lease payments equals or exceeds substantially all of the fair value of the underlying asset; or
(v)The underlying asset is specialized and is expected to have no alternative use at the end of the lease term.
If any of these criteria is met, a lease is classified as a finance lease by the lessee and as a sales-type lease by the lessor. If none of the criteria are met, a lease is classified as an operating lease by the lessee but may still qualify as a direct financing lease or an operating lease for the lessor. The existence of a residual value guarantee from an unrelated third party other than the lessee may qualify the lease as a direct financing lease by the lessor. Otherwise, the lease is classified as an operating lease by the lessor. Therefore, lessees apply a dual approach by classifying leases as either finance or operating leases based on the principle of whether 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, which corresponds to a similar evaluation performed by lessors.
Lessor accounting
Costs to execute leases
We capitalize initial direct costs, which represent only incremental costs of a lease that would not have been incurred if the lease had not been obtained. Costs that we incur to negotiate or arrange a lease, regardless of its outcome, such as for fixed employee compensation, tax, or legal advice to negotiate lease terms, and other costs, are expensed as incurred.
F-17
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Operating leases
We account for the revenue from our lease contracts by utilizing the single component accounting policy. This policy requires us to account for, by class of underlying asset, the lease component and nonlease component(s) associated with each lease as a single component if two criteria are met:
(i)The timing and pattern of transfer of the lease component and the nonlease component(s) are the same; and
(ii)The lease component would be classified as an operating lease if it were accounted for separately.
Lease components consist primarily of fixed rental payments, which represent scheduled rental amounts due under our leases, and contingent rental payments. Nonlease components consist primarily of tenant recoveries representing reimbursements of rental operating expenses under our triple net lease structure, including recoveries for utilities, repairs and maintenance, and common area expenses.
If the lease component is the predominant component, we account for all revenues under such lease as a single component in accordance with the lease accounting standard. Conversely, if the nonlease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. Our operating leases qualify for the single component accounting, and the lease component in each of our leases is predominant. Therefore, we account for all revenues from our operating leases under the lease accounting standard and classify these revenues as income from rentals in our consolidated statements of operations.
We commence recognition of income from rentals related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession or controls the physical use of the leased asset. Income from rentals related to fixed rental payments under operating leases is recognized on a straight-line basis over the respective operating lease terms. We classify amounts expected to be received in later periods as deferred rent in our consolidated balance sheets. Amounts received currently but recognized as revenue in future periods are classified in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets.
Income from rentals related to variable payments includes tenant recoveries, and contingent rental payments. Tenant recoveries, including reimbursements of utilities, repairs and maintenance, common area expenses, real estate taxes and insurance, and other operating expenses, are recognized as revenue in the period during which the applicable expenses are incurred and the tenant’s obligation to reimburse us arises. Income from rentals related to other variable payments is recognized when associated contingencies are removed.
We assess collectibility from our tenants of future lease payments for each of our operating leases. If we determine that collectibility is probable, we recognize income from rentals based on the methodology described above. If we determine that collectibility is not probable, we recognize an adjustment to lower our income from rentals. Furthermore, we may recognize a general allowance at a portfolio level (not the individual level), if we do not expect to collect future lease payments in full.
Due to the uncertainties posed to the business and operations of our tenants by the COVID-19 pandemic, during the three months ended March 31, 2020, we recognized an adjustment aggregating $1.6 million to lower our income from rentals and deferred rent related to certain leases where we determined that the collection of future lease payments was not probable. For these leases, we ceased the recognition of income from rentals on a straight-line basis and began the recognition of income from rentals on a cash basis as lease payments are collected. We will not resume straight-line recognition of income from rentals for these leases until we determine that collectibility of future payments related to these leases is probable. During the three months ended June 30, 2020, September 30, 2020, and December 31, 2020, no further adjustments were required.
During the year ended December 31, 2020, we also recorded a general allowance aggregating $3.8 million, which was primarily incurred and recognized during the three months ended March 31, 2020, for a pool of deferred rent balances, which at the portfolio level (not the individual level) was not expected to be collected in full through the lease term. We recorded the general allowance as a reduction of our income from rentals and deferred rent balance within our consolidated statements of operations and consolidated balance sheets, respectively.
Direct financing and sales-type leases
As of December 31, 2020, we had one direct financing lease and no sales-type leases. Income from rentals related to our direct financing lease is recognized over the lease term using the effective interest rate method. At lease commencement, we record an asset within other assets in our consolidated balance sheets, which represents our net investment in the direct financing lease. This initial net investment is determined by aggregating the total future lease payments attributable to the direct financing lease and the estimated residual value of the property less unearned income. Over the lease term, the investment in the direct financing lease is reduced and rental income is recognized as income from rentals in our consolidated statements of operations, producing a constant periodic rate of return on the net investment in the direct financing lease.
F-18
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
We evaluate our net investment in the direct financing lease for impairment under the new current expected credit loss standard that we adopted on January 1, 2020. For more information, refer to the “Allowance for credit losses” section within this Note 2 to our consolidated financial statements.
Lessee accounting
We have operating lease agreements in which we are the lessee consisting of ground and office leases. At the lease commencement date (or at the acquisition date if the lease is acquired as part of a real estate acquisition), we are required to recognize a liability to account for our future obligations under these operating leases, and a corresponding right-of-use asset.
The lease liability is measured based on the present value of the future lease payments, including payments during the term under our extension options that we are reasonably certain to exercise. The present value of the future lease payments is calculated for each operating lease using each respective remaining lease term and a corresponding estimated incremental borrowing rate, which is the interest rate that we estimate we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. Subsequently, the lease liability is accreted by applying a discount rate established at the lease commencement date to the lease liability balance as of the beginning of the period and is reduced by the payments made during the period. We classify the operating lease liability in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets.
The right-of-use asset is measured based on the corresponding lease liability, adjusted for initial direct leasing costs and any other consideration exchanged with the landlord prior to the commencement of the lease, as well as adjustments to reflect favorable or unfavorable terms of an acquired lease when compared with market terms at the time of acquisition. Subsequently, the right-of-use asset is amortized on a straight-line basis during the lease term. We classify the right-of-use asset in other assets in our consolidated balance sheets.
Recognition of revenue arising from contracts with customers
We recognize revenues associated with transactions arising from contracts with customers, excluding revenues subject to the lease accounting standard discussed in the “Lease accounting” section above, in accordance with the revenue recognition accounting standard. A customer is distinguished from a noncustomer by the nature of the goods or services that are transferred. Customers are provided with goods or services that are generated by a company’s ordinary output activities, whereas noncustomers are provided with nonfinancial assets that are outside of a company’s ordinary output activities.
We generally recognize revenue representing the transfer of goods and services to customers in an amount that reflects the consideration to which we expect to be entitled in the exchange. In order to determine the recognition of revenue from customer contracts, we use a five-step model to (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligation.
We identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. We consider whether we control the goods or services prior to the transfer to the customer in order to determine whether we should account for the arrangement as a principal or agent. If we determine that we control the goods or services provided to the customer, then we are the principal to the transaction, and we recognize the gross amount of consideration expected in the exchange. If we simply arrange but do not control the goods or services being transferred to the customer, then we are considered to be an agent to the transaction, and we recognize the net amount of consideration we are entitled to retain in the exchange.
Total revenues subject to the revenue recognition accounting standard and classified within income from rentals in our consolidated statements of operations for the year ended December 31, 2020, included $21.3 million primarily related to short-term parking revenues associated with long-term lease agreements. During the year ended December 31, 2019, revenues subject to the revenue recognition accounting standard and classified within income from rentals in our consolidated statements of operations were $48.8 million primarily related to short-term parking revenues associated with long-term lease agreements and revenues generated from our transient parking, retail tenants, and amenities. Short-term parking revenues do not qualify for the single lease component practical expedient, discussed in the “Lessor accounting” subsection of the “Lease accounting” section within this Note 2, due to the difference in the timing and pattern of transfer of our parking service obligations and associated lease components within the same lease agreement. We recognize short-term parking revenues in accordance with the revenue recognition accounting standard when the service is provided and the performance obligation is satisfied, which normally occurs at a point in time.
F-19
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Monitoring of tenant credit quality
During the term of each lease, we monitor the credit quality and any related material changes 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.
Allowance for credit losses
On January 1, 2020, we adopted an accounting standard (further clarified in subsequently issued updates) that requires companies to estimate and recognize lifetime expected losses, rather than incurred losses, which results in the earlier recognition of credit losses even if the expected risk of credit loss is remote. The accounting standard applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases arising from sales-type and direct financing leases, and off-balance-sheet credit exposures (e.g., loan commitments). The standard does not apply to the receivables arising from operating leases. An assessment of the collectibility of operating lease payments and the recognition of an adjustment to lease income based on this assessment is governed by the lease accounting standard discussed in the “Lease accounting” section earlier within this Note 2 to our consolidated financial statements.
Upon adoption of the accounting standard, we had one lease subject to this standard classified as a direct financing lease with a net investment balance aggregating $39.9 million prior to the credit loss adjustment. In this direct financing lease, the payment obligation of the lessee is collateralized by real estate property. Historically, we have had no collection issues related to this direct financing lease; therefore, we assessed the probability of default on this lease based on the lessee’s financial condition, credit rating, business prospects, remaining lease term, and expected value of the underlying collateral upon its repossession. Based on the aforementioned considerations, we estimated a credit loss adjustment related to this direct financing lease aggregating $2.2 million, which was recognized as a cumulative adjustment to retained earnings and as a reduction of the investment in the direct financing lease balance from $39.9 million to $37.7 million in our consolidated balance sheets on January 1, 2020. Subsequent to the initial recognition, at each reporting date we recognize a credit loss adjustment, if necessary, for our current estimate of expected credit losses, which is classified within rental operations in our consolidated statements of operations. For further details, refer to Note 5 – “Leases” to our consolidated financial statements.
In addition to our direct financing lease, the accounting standard on credit losses applies to our receivables that result from revenue transactions within the scope of the revenue recognition accounting standard discussed in the “Recognition of revenue arising from contracts with customers” section earlier within this Note 2. Upon adoption of the standard on January 1, 2020, our receivables resulting from revenue transactions within the scope of revenue recognition accounting standard aggregated $16.1 million. Among other factors, we considered the short-term nature of these receivables, our positive assessment of the financial condition and business prospects of the payors, and minimal historical collectibility issues. Based on the aforementioned considerations, we estimated the credit loss related to our trade receivables to approximate $259 thousand, which was recognized as a cumulative adjustment to retained earnings and as a reduction of the trade receivables balance in our consolidated balance sheets on January 1, 2020.
Income taxes
We are organized and operate 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 stockholders annually (excluding net capital gains) and meets certain other conditions is not subject to federal income tax on its distributed taxable income, but could be subject to certain federal, foreign, 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, foreign, 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 the 2014 through 2019 calendar years.
Employee and non-employee share-based payments
We have implemented an entity-wide accounting policy to account for forfeitures of share-based awards granted to employees and non-employees when they occur. As a result of this policy, we recognize expense on share-based awards with time-based vesting conditions without reductions for an estimate of forfeitures. This accounting policy only applies to service condition awards. For performance condition awards, we continue to assess the probability that such conditions will be achieved. Expenses related to forfeited awards are reversed as forfeitures occur. In addition, all nonforfeitable dividends paid on share-based payment awards are initially classified in retained earnings and reclassified to compensation cost only if forfeitures of the underlying awards occur. Our employee and non-employee share-based awards are measured on the grant date and recognized over the recipient’s required service period.
F-20
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Forward equity sales agreements
We account for our forward equity sales agreements in accordance with the accounting guidance governing financial instruments and derivatives. As of December 31, 2020, none of our forward equity sales agreements were deemed to be liabilities as they did not embody obligations to repurchase our shares, nor did they embody obligations to issue a variable number of shares for which the monetary value was predominantly fixed, varied with something other than the fair value of our shares, or varied inversely in relation to our shares. We also evaluated whether the agreements met the derivatives and hedging guidance scope exception to be accounted for as equity instruments and concluded that the agreements can be classified as equity contracts based on the following assessment: (i) none of the agreements’ exercise contingencies were based on observable markets or indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreements from being indexed to our own stock.
Issuer and guarantor subsidiaries of guaranteed securities
In March 2020, the SEC issued an amendment to existing guidance to reduce and simplify financial disclosure requirements for issuers and guarantors of registered debt offerings. The guidance became effective for filings on or after January 4, 2021, with early adoption permitted. Upon evaluation of the guidance, we elected to early adopt the amendment during the three months ended March 31, 2020.
Generally, a parent entity must provide separate subsidiary issuer or guarantor financial statements, unless it qualifies for disclosure exceptions provided in the amendment. Under the previous guidance, a parent entity was required to fully own the subsidiary issuer or guarantor and guarantee its registered security fully and unconditionally to qualify for disclosure exceptions. Pursuant to the amendment, a parent entity may be eligible for disclosure exceptions if it meets the following criteria:
-
The subsidiary issuer or guarantor is a consolidated subsidiary of the parent company, and
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The subsidiary issues a registered security that is:
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Issued jointly and severally with the parent company, or
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Fully and unconditionally guaranteed by the parent company.
A parent entity that meets the above criteria may instead present summarized financial information (“alternative disclosures”). We evaluated the criteria and determined that we are eligible for the disclosure exceptions, which allow us to provide alternative disclosures.
The amendment also allows for further simplification of disclosure requirements for entities that qualify for the alternative disclosures. A parent entity was previously required to provide disclosures within the footnotes to the consolidated financial statements. However, the amendment allows for such disclosures to be provided outside of the consolidated financial statements, including within the “Management’s discussion and analysis of financial condition and results of operations” section under Item 7 in this annual report on Form 10-K. As such, our disclosures are no longer presented in our consolidated financial statements and have been relocated to the “Management’s discussion and analysis of financial condition and results of operations” section in Item 7 in this annual report on Form 10-K.
Loan fees
Fees incurred in obtaining long-term financing are capitalized and classified with the corresponding debt instrument appearing on our consolidated balance sheet. Loan fees related to our unsecured senior line of credit are classified within other assets. Capitalized amounts are amortized over the term of the related loan, and the amortization is classified in interest expense in our consolidated statements of operations.
Joint venture distributions
We use the “nature of the distribution” approach to determine the classification within our statement of cash flows of cash distributions received from equity method investments, including our unconsolidated joint ventures. Under this approach, distributions are classified based on the nature of the underlying activity that generated the cash distributions. If we lack the information necessary to apply this approach in the future, we will be required to apply the “cumulative earnings” approach as an accounting change on a retrospective basis. Under the cumulative earnings approach, distributions up to the amount of cumulative equity in earnings recognized are classified as cash inflows from operating activities, and those in excess of that amount are classified as cash inflows from investing activities.
F-21
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted cash
We present cash and cash equivalents separately from restricted cash within our consolidated balance sheets. We include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the consolidated statements of cash flows. We provide a reconciliation between the balance sheets and statements of cash flows, as required when the balance includes more than one line item for cash, cash equivalents, and restricted cash. We also provide a disclosure of the nature of the restrictions related to material restricted cash balances.
3. INVESTMENTS IN REAL ESTATE
Our consolidated investments in real estate, including real estate assets held for sale as described in Note 18 – “Assets classified as held for sale” to our consolidated financial statements, consisted of the following as of December 31, 2020 and 2019 (in thousands):
| December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Rental properties: | ||||||||||||||
| Land (related to rental properties) | $ | 2,550,571 | $ | 2,225,785 | ||||||||||
| Buildings and building improvements | 13,364,561 | 11,775,132 | ||||||||||||
| Other improvements | 1,508,776 | 1,277,862 | ||||||||||||
| Rental properties | 17,423,908 | 15,278,779 | ||||||||||||
| Development and redevelopment of new Class A properties: | ||||||||||||||
| Development and redevelopment projects | 3,075,453 | 2,057,084 | ||||||||||||
| Future development projects | 738,994 | 182,746 | ||||||||||||
| Gross investments in real estate | 21,238,355 | 17,518,609 | ||||||||||||
| Less: accumulated depreciation | (3,178,024) | (2,704,657) | ||||||||||||
| Net investments in real estate – North America | 18,060,331 | 14,813,952 | ||||||||||||
| Net investments in real estate – Asia | 32,041 | 30,086 | ||||||||||||
| Investments in real estate | $ | 18,092,372 | $ | 14,844,038 |
F-22
3. INVESTMENTS IN REAL ESTATE (continued)
Acquisitions
Our real estate asset acquisitions during the year ended December 31, 2020, consisted of the following (dollars in thousands):
| Square Footage | |||||||||||||||||||||||||||||||||||||||||
| Market | Number of Properties | Future Development | Active Redevelopment | Operating With Future Development/Redevelopment | Operating | Purchase Price | |||||||||||||||||||||||||||||||||||
| Greater Boston | 7 | 1,890,000 | — | 710,779 | 752,784 | $ | 830,576 | ||||||||||||||||||||||||||||||||||
| San Francisco | 10 | 960,000 | — | 403,699 | 686,320 | 399,198 | (1) | ||||||||||||||||||||||||||||||||||
| San Diego | 7 | 1,149,000 | — | 383,525 | 334,913 | 412,448 | |||||||||||||||||||||||||||||||||||
| Seattle | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Maryland | 1 | — | 169,420 | — | — | 43,000 | |||||||||||||||||||||||||||||||||||
| Research Triangle | 16 | — | 652,381 | 100,145 | 1,485,621 | 590,412 | |||||||||||||||||||||||||||||||||||
| Other | 14 | 1,082,713 | 277,750 | 164,656 | 570,952 | 287,768 | |||||||||||||||||||||||||||||||||||
| Year ended December 31, 2020 | 55 | 5,081,713 | 1,099,551 | 1,762,804 | 3,830,590 | $ | 2,563,402 | (2) |
(1)In January 2020, we formed a real estate joint venture with subsidiaries of Boston Properties, Inc. Amount excludes our partner’s contributed real estate assets with a total fair market value of $350.0 million. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements for additional information.
(2)Represents the aggregate contractual purchase price of our acquisitions, which differ from purchases of real estate in our consolidated statements of cash flows due to closing costs and other acquisition adjustments such as prorations of rents and expenses.
Based upon our evaluation of each acquisition, we determined that substantially all of the fair value related to each acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets, or is associated with a land parcel with no operations. Accordingly, each transaction did not meet the definition of a business and therefore was accounted for as an asset acquisition. In each of these transactions, we allocated the total consideration for each acquisition to the individual assets and liabilities acquired on a relative fair value basis.
During the year ended December 31, 2020, we acquired 55 properties for an aggregate purchase price of $2.6 billion. In connection with our acquisitions, we recorded in-place leases aggregating $286.1 million and below-market leases in which we are the lessor aggregating $151.1 million. As of December 31, 2020, the weighted-average amortization period remaining on our in-place and below-market leases acquired during the year ended December 31, 2020, was 8.0 years and 10.1 years, respectively, and 8.8 years in total.
For the discussion of our formation of consolidated real estate joint venture, refer to the “Formation of consolidated real estate joint ventures, impairment of an unconsolidated real estate joint venture, and sales of partial interests” section in Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements.
Real estate assets acquired in January 2021
In January 2021, we acquired 401 Park Drive, 201 Brookline Avenue, and one future development opportunity, aggregating 1.8 million SF, located in the heart of our Greater Boston life science cluster market, for a purchase price of $1.48 billion. The future collaborative life science campus consists of an operating property with a future redevelopment opportunity at 401 Park Drive, aggregating 973,145 RSF, an active development at 201 Brookline Avenue aggregating 510,116 RSF, and a future development opportunity for one office/laboratory building for which we are pursuing net new entitlement rights totaling approximately 400,000 SF. Achievement of entitlement rights greater than 305,000 SF will increase our purchase price by a maximum of $97.9 million.
In January 2021, we also completed the acquisitions of three properties for an aggregate purchase price of $118.9 million, comprising 345,678 RSF of operating properties and active redevelopment strategically located across multiple markets.
Acquired below-market leases
The balances of acquired below-market tenant leases existing as of December 31, 2020 and 2019, and related accumulated amortization, classified in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets as of December 31, 2020 and 2019, were as follows (in thousands):
| December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Acquired below-market leases | $ | 477,377 | $ | 326,255 | ||||||||||
| Accumulated amortization | (189,302) | (131,482) | ||||||||||||
| $ | 288,075 | $ | 194,773 |
F-23
3. INVESTMENTS IN REAL ESTATE (continued)
For the years ended December 31, 2020, 2019, and 2018, we recognized in rental revenues approximately $57.8 million, $30.3 million, and $22.3 million, respectively, related to the amortization of acquired below-market leases existing as of the end of each respective year.
The weighted-average amortization period of the value of acquired below-market leases existing as of December 31, 2020, was approximately 5.6 years, and the estimated annual amortization of the value of acquired below-market leases as of December 31, 2020, is as follows (in thousands):
| Year | Amount | |||||||
| 2021 | $ | 42,002 | ||||||
| 2022 | 34,847 | |||||||
| 2023 | 31,112 | |||||||
| 2024 | 28,094 | |||||||
| 2025 | 24,788 | |||||||
| Thereafter | 127,232 | |||||||
| Total | $ | 288,075 |
Acquired in-place leases
The balances of acquired in-place leases, and related accumulated amortization, classified in other assets in our consolidated balance sheets as of December 31, 2020 and 2019, were as follows (in thousands):
| December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Acquired in-place leases | $ | 712,380 | $ | 426,280 | ||||||||||
| Accumulated amortization | (250,056) | (144,630) | ||||||||||||
| $ | 462,324 | $ | 281,650 |
Amortization for these intangible assets, classified in depreciation and amortization expense in our consolidated statements of operations, was approximately $105.4 million, $49.1 million, and $34.3 million for the years ended December 31, 2020, 2019, and 2018, respectively. The weighted-average amortization period of the value of acquired in-place leases was approximately 8.1 years, and the estimated annual amortization of the value of acquired in-place leases as of December 31, 2020, is as follows (in thousands):
| Year | Amount | |||||||
| 2021 | $ | 101,193 | ||||||
| 2022 | 70,441 | |||||||
| 2023 | 57,368 | |||||||
| 2024 | 43,174 | |||||||
| 2025 | 35,747 | |||||||
| Thereafter | 154,401 | |||||||
| Total | $ | 462,324 |
Sales of real estate assets
During the year ended December 31, 2020, we sold partial interests in the following properties: (i) 681, 685, and 701 Gateway Boulevard in our South San Francisco submarket during the three months ended March 31, 2020, (ii) 9808 and 9868 Scranton Road in our Sorrento Mesa submarket during the three months ended June 30, 2020, and (iii) 1201 and 1208 Eastlake Avenue East and 199 East Blaine Street in our Lake Union submarket during the three months ended December 31, 2020. For the discussion of our sales of partial interests, refer to the “Formation of consolidated real estate joint ventures, impairment of an unconsolidated real estate joint venture, and sales of partial interests” section in Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements.
510 Townsend Street and 505 Brannan Street
In November 2020, we completed the sale of two tech office properties aggregating 443,479 RSF at 510 Townsend Street and 505 Brannan Street in our SoMa submarket for an aggregate sales price of $560.2 million and recognized a gain of $151.9 million.
F-24
3. INVESTMENTS IN REAL ESTATE (continued)
Impairment charges
During the year ended December 31, 2020, we recognized impairment charges aggregating $48.1 million, primarily including:
-
Impairment charges aggregating $15.2 million, which primarily consisted of a $10 million write-off of the pre-acquisition deposit for a previously pending acquisition of an operating tech office property for which our revised economic projections declined from our initial underwriting. We recognized this impairment charge in April 2020 concurrently with the submission of our notice to terminate the transaction.
-
Impairment charge of $13.5 million recognized during the three months ended December 31, 2020, upon classification of our real estate assets located at 260 Townsend Street in our SoMa submarket as held for sale. We expect to sell this real estate asset during 2021.
-
Impairment charge of $11.7 million recognized during the three months ended December 31, 2020, upon classification of our real estate asset located at 220 and 240 2nd Avenue South in our SoDo submarket as held for sale. We expect to sell this real estate asset during 2021.
-
Impairment charge of $6.8 million recognized during the three months ended September 30, 2020, upon classification of our real estate asset located at 945 Market Street in our SoMa submarket as held for sale. In September 2020, we completed the sale of the real estate asset for a sales price of $198.0 million with no gain or loss.
F-25
4. CONSOLIDATED AND UNCONSOLIDATED REAL ESTATE JOINT VENTURES
From time to time, we enter into joint venture agreements through which we own a partial interest in real estate entities that own, develop, and operate real estate properties. As of December 31, 2020, our real estate joint ventures held the following properties:
| Property | Market | Submarket | Our Ownership Interest(1) | ||||||||||||||||||||||||||
| Consolidated joint ventures*(2)**:* | |||||||||||||||||||||||||||||
| 225 Binney Street | Greater Boston | Cambridge/Inner Suburbs | 30.0 | % | |||||||||||||||||||||||||
| 75/125 Binney Street | Greater Boston | Cambridge/Inner Suburbs | 40.0 | % | |||||||||||||||||||||||||
| 57 Coolidge Avenue | Greater Boston | Cambridge/Inner Suburbs | 75.0 | % | |||||||||||||||||||||||||
| 409 and 499 Illinois Street | San Francisco | Mission Bay | 60.0 | % | |||||||||||||||||||||||||
| 1500 Owens Street | San Francisco | Mission Bay | 50.1 | % | |||||||||||||||||||||||||
| Alexandria Technology Center® – Gateway(3) | San Francisco | South San Francisco | 45.1 | % | |||||||||||||||||||||||||
| 500 Forbes Boulevard | San Francisco | South San Francisco | 10.0 | % | |||||||||||||||||||||||||
| Alexandria Point(4) | San Diego | University Town Center | 55.0 | % | |||||||||||||||||||||||||
| 5200 Illumina Way | San Diego | University Town Center | 51.0 | % | |||||||||||||||||||||||||
| 9625 Towne Centre Drive | San Diego | University Town Center | 50.1 | % | |||||||||||||||||||||||||
| SD Tech by Alexandria(5) | San Diego | Sorrento Mesa | 50.0 | % | |||||||||||||||||||||||||
| The Eastlake Life Science Campus by Alexandria(6) | Seattle | Lake Union | 30.0 | % | |||||||||||||||||||||||||
| Unconsolidated joint ventures*(2)**:* | |||||||||||||||||||||||||||||
| 1655 and 1725 Third Street | San Francisco | Mission Bay | 10.0 | % | |||||||||||||||||||||||||
| Menlo Gateway | San Francisco | Greater Stanford | 49.0 | % | |||||||||||||||||||||||||
| 704 Quince Orchard Road | Maryland | Gaithersburg | 56.8 | % | (7) |
(1)Refer to the table on the next page that shows the categorization of our joint ventures under the consolidation framework.
(2)In addition to the real estate joint ventures listed, various partners hold insignificant noncontrolling interests in five other consolidated joint ventures in North America and we hold an interest in two other insignificant unconsolidated real estate joint ventures in North America.
(3)Excludes 600, 630, 650, 901, and 951 Gateway Boulevard in our South San Francisco submarket.
(4)Excludes 9880 Campus Point Drive in our University Town Center submarket.
(5)Excludes 5505 Morehouse Drive and 10121 and 10151 Barnes Canyon Road in our Sorrento Mesa submarket.
(6)Excludes 1165, 1616, and 1551 Eastlake Avenue East, 188 East Blaine Street, and 1600 Fairview Avenue East in our Lake Union submarket.
(7)Represents our ownership interest; our voting interest is limited to 50%.
Our consolidation policy is fully described under the “Consolidation” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements. Consolidation accounting is highly technical, but its framework is primarily based on the controlling financial interests and benefits of the joint ventures.
We generally consolidate a joint venture that is a legal entity that we control (i.e., we have the power to direct the activities of the joint venture that most significantly affect its economic performance) through contractual rights, regardless of our ownership interest, and where we determine that we have benefits through the allocation of earnings or losses and fees paid to us that could be significant to the joint venture (the “VIE model”).
We also generally consolidate joint ventures when we have a controlling financial interest through voting rights and where our voting interest is greater than 50% (the “voting model”). Voting interest differs from ownership interest for some joint ventures.
We account for joint ventures that do not meet the consolidation criteria under the equity method of accounting by recognizing our share of income and losses.
F-26
4. CONSOLIDATED AND UNCONSOLIDATED REAL ESTATE JOINT VENTURES (continued)
The table below shows the categorization of our joint ventures under the consolidation framework:
| Property(1) | Consolidation Model | Voting Interest | Consolidation Analysis | Conclusion | |||||||||||||||||||||||||
| 225 Binney Street | VIE model | Not applicable under VIE model | We have: | Consolidated | |||||||||||||||||||||||||
| 75/125 Binney Street | (i) | The power to direct the activities of the joint venture that most significantly affect its economic performance; and | |||||||||||||||||||||||||||
| 57 Coolidge Avenue | |||||||||||||||||||||||||||||
| 409 and 499 Illinois Street | |||||||||||||||||||||||||||||
| 1500 Owens Street | |||||||||||||||||||||||||||||
| Alexandria Technology Center® – Gateway | |||||||||||||||||||||||||||||
| 500 Forbes Boulevard | (ii) | Benefits that can be significant to the joint venture. | |||||||||||||||||||||||||||
| Alexandria Point | |||||||||||||||||||||||||||||
| 5200 Illumina Way | Therefore, we are the primary beneficiary of each VIE | ||||||||||||||||||||||||||||
| 9625 Towne Centre Drive | |||||||||||||||||||||||||||||
| SD Tech by Alexandria | |||||||||||||||||||||||||||||
| The Eastlake Life Science Campus by Alexandria | |||||||||||||||||||||||||||||
| Menlo Gateway | We do not control the joint venture and are therefore not the primary beneficiary | Equity method of accounting | |||||||||||||||||||||||||||
| 704 Quince Orchard Road | Voting model | Does not exceed 50% | Our voting interest is 50% or less | ||||||||||||||||||||||||||
| 1655 and 1725 Third Street |
(1) In addition to the real estate joint ventures listed, various partners hold insignificant noncontrolling interests in five other consolidated joint ventures in North America and we hold an interest in two other insignificant unconsolidated real estate joint ventures in North America.
Formation of consolidated real estate joint ventures, impairment of an unconsolidated real estate joint venture, and sales of partial interests
57 Coolidge Avenue
In July 2020, we formed a real estate joint venture with a local developer and investor to acquire a land parcel aggregating approximately 275,000 SF at 57 Coolidge Avenue in our Cambridge/Inner Suburbs submarket for a contractual purchase price of approximately $32.6 million. Our ownership interest in the joint venture is 75%.
As part of the joint venture agreement, we are responsible for activities that most significantly impact the economic performance of the joint venture. In addition, our joint venture partner lacks kick-out rights over our role as property manager. Therefore, we determined that our joint venture partner does not have a controlling financial interest, and consequently this joint venture should be accounted for as a VIE. We also determined that we are the primary beneficiary of the joint venture because we are responsible for activities that most significantly impact the economic performance of the joint venture, and also have the obligation to absorb losses of or the right to receive benefits from the joint venture that could potentially be significant to the joint venture. Accordingly, we have consolidated the joint venture under the variable interest model.
Refer to the “Consolidation” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements for additional information.
Alexandria Technology Center*®* – Gateway
In January 2020, we formed a real estate joint venture with subsidiaries of Boston Properties, Inc. We currently own 45% of the real estate joint venture and are expecting to increase our ownership to 51%. Our partner contributed three office buildings, aggregating 776,003 RSF, at 601, 611, and 651 Gateway Boulevard, and land supporting 260,000 SF of future development with aggregate fair market value of $350.0 million. We contributed one office building, one office/laboratory building, one amenity building, aggregating 313,262 RSF, at 701, 681, and 685 Gateway Boulevard, respectively, and land supporting 377,000 SF of future development with aggregate fair market value of $281.9 million. This future campus in our South San Francisco submarket will aggregate 1.7 million RSF.
F-27
4. CONSOLIDATED AND UNCONSOLIDATED REAL ESTATE JOINT VENTURES (continued)
As part of the joint venture agreement, we are responsible for activities that most significantly impact the economic performance of the joint venture. In addition, our joint venture partner lacks kick-out rights over our role as property manager. Therefore, we determined that our joint venture partner does not have a controlling financial interest, and consequently this joint venture should be accounted for as a VIE. We also determined that we are the primary beneficiary of the joint venture because we are responsible for activities that most significantly impact the economic performance of the joint venture, and also have the obligation to absorb losses of or the right to receive benefits from the joint venture that could potentially be significant to the joint venture. Accordingly, we have consolidated the joint venture under the variable interest model.
We retained controlling interests and the contributed properties remain consolidated in our financial statements; therefore, no adjustments were made to the carrying values of these properties, and no gain was recognized in our consolidated statements of operations. We accounted for this transaction as an equity transaction with an adjustment of $55.8 million to our additional paid-in capital. The carrying amounts of our partner’s share of assets and liabilities are reported at historical cost within a noncontrolling interest balance of our consolidated statement of shareholders’ equity.
Refer to the “Consolidation” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements for additional information.
1401/1413 Research Boulevard
In January 2015, we formed a joint venture with a local retail developer and operator by contributing a land parcel located in our Rockville submarket of Maryland. The joint venture developed a retail shopping center aggregating approximately 90,000 RSF, which was primarily funded by a $26.2 million construction loan that is non-recourse to us and matures in May 2021. As of December 31, 2019, our investment in this joint venture was $7.7 million, which primarily consisted of the value of the retail shopping center, and was accounted for under the equity method of accounting as we did not have a controlling interest.
In March 2020, as a result of the impact of COVID-19 pandemic and the State of Maryland’s shelter-in-place orders, which led to the closure of the retail center, and the near-term debt maturity of the secured loan, we evaluated the recoverability of our investment and recognized a $7.6 million impairment charge to lower the carrying amount of our investment balance, which primarily consisted of real estate, to its estimated fair value less costs to sell. The estimated real estate impairment charge reduced our investment balance in the joint venture to zero dollars and was classified in equity in earnings of unconsolidated real estate joint ventures within our consolidated statements of operations for the year ended December 31, 2020.
9808 and 9868 Scranton Road
In April 2020, we completed the sale of properties aggregating 219,628 RSF at 9808 and 9868 Scranton Road in our Sorrento Mesa submarket to the existing SD Tech by Alexandria consolidated real estate joint venture, of which we own 50%. The gross proceeds received from our partner for its 50% interest in the properties were $51.1 million. We continue to control and consolidate this joint venture; therefore, we accounted for the difference between the consideration received and the book value of the interest sold as an equity transaction with no gain recognized in earnings.
The Eastlake Life Science Campus by Alexandria
In November 2020, we completed the sale of a 70% interest in our properties at 1201 and 1208 Eastlake Avenue East and 199 East Blaine Street, aggregating 321,218 RSF, located in our Lake Union submarket, for an aggregate sales price of $314.5 million. We formed a joint venture with the buyer of the partial interest and hold a 30% ownership interest in this joint venture.
As part of the joint venture agreement, we are responsible for activities that most significantly impact the economic performance of the joint venture. In addition, our joint venture partner lacks kick-out rights over our role as property manager. Therefore, we determined that our joint venture partner does not have a controlling financial interest, and consequently this joint venture should be accounted for as a VIE. We also determined that we are the primary beneficiary of the joint venture because we are responsible for activities that most significantly impact the economic performance of the joint venture, and also have the obligation to absorb losses of or the right to receive benefits from the joint venture that could potentially be significant to the joint venture. Accordingly, we have consolidated the joint venture under the variable interest model.
We determined that we have a controlling interest in the joint venture, and therefore we continue to consolidate these properties. Accordingly, we accounted for the difference between consideration received and the book value of the interest sold as an equity financing transaction and recorded $211.3 million as an adjustment to additional paid-in capital, with no gain recognized in earnings. This transaction did not qualify as a sale of real estate and did not result in purchase accounting adjustment to the carrying value. Accordingly, the carrying amounts of our partner’s share of assets and liabilities are reported at historical cost within a noncontrolling interest balance of our consolidated statement of shareholders’ equity.
Refer to the “Consolidation” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements for additional information.
F-28
4. CONSOLIDATED AND UNCONSOLIDATED REAL ESTATE JOINT VENTURES (continued)
Consolidated VIEs’ balance sheet information
The table below aggregates the balance sheet information of our consolidated VIEs as of December 31, 2020 and 2019 (in thousands):
| December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Investments in real estate | $ | 3,196,215 | $ | 2,678,476 | ||||||||||
| Cash and cash equivalents | 95,565 | 81,021 | ||||||||||||
| Other assets | 341,524 | 280,343 | ||||||||||||
| Total assets | $ | 3,633,304 | $ | 3,039,840 | ||||||||||
| Secured notes payable | $ | — | $ | — | ||||||||||
| Other liabilities | 183,237 | 149,471 | ||||||||||||
| Total liabilities | 183,237 | 149,471 | ||||||||||||
| Redeemable noncontrolling interests | 1,731 | 2,388 | ||||||||||||
| Alexandria Real Estate Equities, Inc.’s share of equity | 1,742,039 | 1,600,729 | ||||||||||||
| Noncontrolling interests’ share of equity | 1,706,297 | 1,287,252 | ||||||||||||
| Total liabilities and equity | $ | 3,633,304 | $ | 3,039,840 | ||||||||||
In determining whether to aggregate the balance sheet information of consolidated VIEs, we considered the similarity of each VIE, including the primary purpose of these entities to own, manage, operate, and lease real estate properties owned by the VIEs, and the similar nature of our involvement in each VIE as a managing member. Due to the similarity of the characteristics, we present the balance sheet information of these entities on an aggregated basis. None of our consolidated VIEs’ assets have restrictions that limit their use to settle specific obligations of the VIE. There are no creditors or other partners of our consolidated VIEs that have recourse to our general credit. Our maximum exposure to our consolidated VIEs is limited to our variable interests in each VIE.
Unconsolidated real estate joint ventures
Our maximum exposure to our unconsolidated VIEs is limited to our investment in each VIE. Our investments in unconsolidated real estate joint ventures, accounted for under the equity method of accounting presented in our consolidated balance sheets of December 31, 2020 and 2019, consisted of the following (in thousands):
| December 31, | ||||||||||||||
| Property | 2020 | 2019 | ||||||||||||
| Menlo Gateway | $ | 300,622 | $ | 288,408 | ||||||||||
| 704 Quince Orchard Road | 4,961 | 4,748 | ||||||||||||
| 1655 and 1725 Third Street | 14,939 | 37,016 | ||||||||||||
| Other | 11,827 | 16,718 | ||||||||||||
| $ | 332,349 | $ | 346,890 |
Our unconsolidated real estate joint ventures have the following secured loans that include the following key terms as of December 31, 2020 (dollars in thousands):
| Unconsolidated Joint Venture | Our Share | Maturity Date | Stated Rate | Interest Rate(1) | Debt Balance at 100%(2) | ||||||||||||||||||||||||||||||||||||||||||
| 704 Quince Orchard Road | 56.8% | 3/16/23 | L+1.95% | 3.22% | (3) | $ | 12,660 | ||||||||||||||||||||||||||||||||||||||||
| 1655 and 1725 Third Street | 10.0% | 3/10/25 | 4.50% | 4.57% | 598,232 | ||||||||||||||||||||||||||||||||||||||||||
| Menlo Gateway, Phase II | 49.0% | 5/1/35 | 4.53% | 4.59% | 155,942 | ||||||||||||||||||||||||||||||||||||||||||
| Menlo Gateway, Phase I | 49.0% | 8/10/35 | 4.15% | 4.18% | 139,558 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 906,392 |
(1)Includes interest expense and amortization of loan fees.
(2)Represents outstanding principal, net of unamortized deferred financing costs, as of December 31, 2020.
(3)Includes a 1.00% LIBOR floor on the interest rate.
F-29
5. LEASES
We are subject to the lease accounting standard that sets principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors).
As a lessor, we are required to disclose, among other things, the following:
-
A description of the nature of leases, including terms for any variable payments, options to extend or terminate, and options to purchase the underlying asset;
-
Tabular presentation of undiscounted cash flows to be received over the next five years and thereafter separately for operating leases and direct financing leases;
-
The amount of lease income and its location on the statements of operations;
-
Income classified separately for operating leases and direct financing leases; and
-
Our risk management strategy to mitigate declines in residual value of the leased assets.
As a lessee, we are required to disclose, among other things, the following:
-
A description of the nature of leases, including terms for any variable payments, options to extend or terminate, and options to purchase the underlying asset;
-
The amounts of lease liabilities and corresponding right-of-use assets and their respective locations in the balance sheet;
-
The weighted-average remaining lease term and weighted-average discount rate of leases;
-
Tabular presentation of undiscounted cash flows of our remaining lease payment obligations over the next five years and thereafter; and
-
Total lease costs, including cash paid, amounts expensed, and amounts capitalized.
Refer to the “Lease accounting” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements for additional information.
Leases in which we are the lessor
As of December 31, 2020, we had 338 properties aggregating 31.9 million operating RSF located in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle. We focus on developing Class A properties in AAA innovation cluster locations, which we consider to be highly desirable for tenancy by life science, technology, and agtech entities. Such locations are generally characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space. As of December 31, 2020, all leases in which we are the lessor were classified as operating leases with the exception of one direct financing lease. Our operating leases and direct financing lease are described below.
Operating leases
As of December 31, 2020, our 338 properties were subject to operating lease agreements. Two of these properties, representing two land parcels, are subject to lease agreements that each contain an option for the lessee to purchase the underlying asset from us at fair market value during each of the 30-day periods commencing on the dates that are 15 years, 30 years, and 74.5 years after the rent commencement date of October 1, 2017. The remaining lease term related to each of the two land parcels is 71.9 years. Our leases generally contain options to extend lease terms at prevailing market rates at the time of expiration. Certain operating leases contain early termination options that require advance notification and payment of a penalty, which in most cases is substantial enough to be deemed economically disadvantageous by a tenant to exercise. Future lease payments to be received under the terms of our operating lease agreements, excluding expense reimbursements, in effect as of December 31, 2020, are outlined in the table below (in thousands):
| Year | Amount | |||||||
| 2021 | $ | 1,234,654 | ||||||
| 2022 | 1,251,446 | |||||||
| 2023 | 1,222,980 | |||||||
| 2024 | 1,114,259 | |||||||
| 2025 | 1,035,300 | |||||||
| Thereafter | 6,328,067 | |||||||
| Total | $ | 12,186,706 |
Refer to Note 3 – “Investments in real estate” to our consolidated financial statements for additional information about our owned real estate assets, which are the underlying assets under our operating leases.
F-30
5. LEASES (continued)
Direct financing lease
As of December 31, 2020, we had one direct financing lease agreement for a parking structure with a remaining lease term of 71.9 years. The lessee has an option to purchase the underlying asset at fair market value during each of the 30-day periods commencing on the dates that are 15 years, 30 years, and 74.5 years after the rent commencement date of October 1, 2017. The components of net investment in our direct financing lease as of December 31, 2020 and 2019, are summarized in the table below (in thousands):
| December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Gross investment in direct financing lease | $ | 258,751 | $ | 260,457 | ||||||||||
| Less: unearned income | (218,072) | (220,541) | ||||||||||||
| Less: allowance for credit losses | (2,839) | — | ||||||||||||
| Net investment in direct financing lease | $ | 37,840 | $ | 39,916 |
On January 1, 2020, we adopted an accounting standard that requires companies to estimate and recognize expected losses, rather than incurred losses, which results in the earlier recognition of credit losses even if the expected risk of credit loss is remote. This new accounting standard applies to our direct financing lease described above. Upon adoption of the new standard on January 1, 2020, we recognized a credit loss adjustment related to this direct financing lease aggregating $2.2 million. During the three months ended March 31, 2020, we updated our assessment of the current estimated credit loss related to this direct financing lease and estimated the loss to increase to $2.8 million as of March 31, 2020. As a result, we recognized an additional credit loss adjustment of $614 thousand classified within rental operations in our consolidated statement of operations for the year ended December 31, 2020. No adjustment to the estimated credit loss balance was required during the three months ended June 30, 2020, September 30, 2020, and December 31, 2020. For further details, refer to the “Allowance for credit losses” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements.
Future lease payments to be received under the terms of our direct financing lease as of December 31, 2020, are outlined in the table below (in thousands):
| Year | Total | |||||||
| 2021 | $ | 1,756 | ||||||
| 2022 | 1,809 | |||||||
| 2023 | 1,863 | |||||||
| 2024 | 1,919 | |||||||
| 2025 | 1,976 | |||||||
| Thereafter | 249,428 | |||||||
| Total | $ | 258,751 |
Income from rentals
Our total income from rentals includes revenue related to agreements for the rental of our real estate, which primarily includes revenues subject to the lease accounting standard and revenue recognition accounting standard as shown below (in thousands):
| Year Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Income from rentals: | ||||||||||||||
| Revenues subject to the lease accounting standard: | ||||||||||||||
| Operating leases | $ | 1,854,427 | $ | 1,465,692 | ||||||||||
| Direct financing lease | 2,469 | 2,421 | ||||||||||||
| Revenues subject to the lease accounting standard | 1,856,896 | 1,468,113 | ||||||||||||
| Revenues subject to the revenue recognition accounting standard | 21,312 | 48,751 | ||||||||||||
| Income from rentals | $ | 1,878,208 | $ | 1,516,864 |
F-31
5. LEASES (continued)
Our revenues that are subject to the revenue recognition accounting standard and are classified in income from rentals consist primarily of short-term parking revenues that are not considered lease revenues under the lease accounting standard. Refer to the “Revenues” and “Recognition of revenue arising from contracts with customers” sections in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements for additional information.
During the year ended December 31, 2020, we executed an agreement with Pinterest, Inc. to terminate our contract related to a future lease of 488,899 RSF at our 88 Bluxome Street development project, which has not commenced vertical construction, located in our SoMa submarket. We expect demolition of the existing building at the site prior to the commencement of vertical construction of the project. We received a contract termination fee of $89.5 million and incurred expenses of $3.3 million, resulting in an aggregate termination fee of $86.2 million. The contract termination fee of $89.5 million was classified within income from rentals, and related expenses of $3.3 million were classified within rental operations in our consolidated statements of operations for the year ended December 31, 2020.
Deferred leasing costs
The following table summarizes our deferred leasing costs as of December 31, 2020 and 2019 (in thousands):
| December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Deferred leasing costs | $ | 679,300 | $ | 631,416 | ||||||||||
| Accumulated amortization | (406,627) | (361,373) | ||||||||||||
| Deferred leasing costs, net | $ | 272,673 | $ | 270,043 |
Residual value risk management strategy
Our leases do not have guarantees of residual value on the underlying assets. We manage risk associated with the residual value of our leased assets by (i) evaluating each potential acquisition of real estate to determine whether it meets our business objective to invest primarily in high-demand markets with limited supply of available space, (ii) directly managing our leased properties, conducting frequent property inspections, proactively addressing potential maintenance issues before they arise, and timely resolving any occurring issues, (iii) carefully selecting our tenants and monitoring their credit quality throughout their respective lease terms, and (iv) focusing on making continuous improvements to our sustainability efforts and achievement of our sustainability goals for ground-up development of new buildings, which are targeting Gold or Platinum LEED® certification. Our environmentally focused design decisions, careful selection of construction materials, and continuous monitoring of our properties throughout their lives are expected to promote the durability of building infrastructure and enhance residual value of our properties.
Leases in which we are the lessee
Operating lease agreements
We have operating lease agreements in which we are the lessee consisting of ground and office leases. Certain of these leases have options to extend or terminate the contract terms upon meeting certain criteria. There are no notable restrictions or covenants imposed by the leases, nor guarantees of residual value.
We recognize a right-of-use asset, which is classified within other assets in our consolidated balance sheets, and a related liability, which is classified within accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets, to account for our future obligations under ground and office lease arrangements in which we are the lessee. Refer to the “Lessee accounting” subsection of the “Lease accounting” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements.
As of December 31, 2020, the present value of the remaining contractual payments aggregating $825.8 million, under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $345.8 million. Our corresponding operating lease right-of-use assets, adjusted for initial direct leasing costs and other consideration exchanged with the landlord prior to the commencement of the lease, aggregated $335.9 million. As of December 31, 2020, the weighted-average remaining lease term of operating leases in which we are the lessee was approximately 43 years, and the weighted-average discount rate was 4.88%. The weighted-average discount rate is based on the incremental borrowing rate estimated for each lease, which is the interest rate that we estimate we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments.
Ground lease obligations as of December 31, 2020, included leases for 36 of our properties, which accounted for approximately 11% of our total number of properties. Excluding one ground lease that expires in 2036 related to one operating property with a net book value of $7.1 million as of December 31, 2020, our ground lease obligations have remaining lease terms ranging from approximately 33 years to 94 years, including extension options that we are reasonably certain to exercise.
F-32
5. LEASES (continued)
The reconciliation of future lease payments, under noncancelable operating ground and office leases in which we are the lessee, to the operating lease liability reflected in our consolidated balance sheet as of December 31, 2020, is presented in the table below (in thousands):
| Year | Total | |||||||
| 2021 | $ | 18,903 | ||||||
| 2022 | 19,915 | |||||||
| 2023 | 20,088 | |||||||
| 2024 | 20,334 | |||||||
| 2025 | 20,364 | |||||||
| Thereafter | 726,200 | |||||||
| Total future payments under our operating leases in which we are the lessee | 825,804 | |||||||
| Effect of discounting | (480,054) | |||||||
| Operating lease liability | $ | 345,750 |
Lessee operating costs
Operating lease costs relate to our ground and office leases in which we are the lessee. Ground leases generally require fixed annual rent payments and may also include escalation clauses and renewal options. Our operating lease obligations related to our office leases have remaining terms of up to 14 years, exclusive of extension options. For the years ended December 31, 2020, 2019, and 2018, our costs for operating leases in which we are the lessee were as follows (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||||||
| Gross operating lease costs | $ | 23,518 | $ | 19,740 | $ | 16,102 | ||||||||||||||
| Capitalized lease costs | (3,529) | (1,452) | (340) | |||||||||||||||||
| Expenses for operating leases in which we are the lessee | $ | 19,989 | $ | 18,288 | $ | 15,762 | ||||||||||||||
For the years ended December 31, 2020, 2019, and 2018, amounts paid and classified as operating activities in our consolidated statements of cash flows for leases in which we are the lessee, were $20.8 million, $17.7 million, and $14.8 million, respectively.
6. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash, cash equivalents, and restricted cash consisted of the following as of December 31, 2020 and 2019 (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash and cash equivalents | $ | 568,532 | $ | 189,681 | |||||||
| Restricted cash: | |||||||||||
| Funds held in trust under the terms of certain secured notes payable | 17,256 | 24,331 | |||||||||
| Funds held in escrow related to construction projects and investing activities | 4,580 | 23,252 | |||||||||
| Other | 7,337 | 5,425 | |||||||||
| 29,173 | 53,008 | ||||||||||
| Total | $ | 597,705 | $ | 242,689 |
F-33
7. INVESTMENTS
We hold investments in publicly traded companies and privately held entities primarily involved in the life science, technology, and agtech industries, as further described below.
Investments in publicly traded companies
Our investments in publicly traded companies are classified as investments with readily determinable fair values and are presented at fair value in our consolidated balance sheets, with changes in fair value classified in investment income in our consolidated statements of operations.
Investments in privately held companies
Our investments in privately held entities consist of (i) investments in entities that report NAV, and (ii) investments in privately held entities that do not report NAV. These investments are accounted for as follows:
Investments in privately held entities that report NAV
Investments in entities that report NAV, such as our privately held investments in limited partnerships, are presented at fair value using NAV as a practical expedient, with changes in fair value recognized in net income. We use NAV reported by limited partnerships generally without adjustment, unless we are aware of information indicating that the NAV reported by a limited partnership does not accurately reflect the fair value of the investment at our reporting date.
Investments in privately held entities that do not report NAV
Investments in privately held entities that do not report NAV are carried at cost, adjusted for observable price changes and impairments, with changes recognized in net income. These investments continue to be evaluated on the basis of a qualitative assessment for indicators of impairment by utilizing the same monitoring criteria described in the “Investments” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements, and by monitoring the presence of the following impairment indicators:
(i)a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee,
(ii)a significant adverse change in the regulatory, economic, or technological environment of the investee,
(iii)a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, and/or
(iv)significant concerns about the investee’s ability to continue as a going concern.
If such indicators are present, we are required to estimate the investment’s fair value and immediately recognize an impairment charge in an amount equal to the investment’s carrying value in excess of its estimated fair value.
Investments in privately held entities are accounted for under the equity method, unless our interest in the entity is deemed to be so minor that we have virtually no influence over the entity’s operating and financial policies. Under the equity method of accounting, we initially recognize our investment 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. We had no non-real estate investments accounted for under the equity method as of December 31, 2020.
Investment income/loss recognition and classification
We classify unrealized and realized gains and losses on our investments within investment income in our consolidated statements of operations. Unrealized gains and losses represent:
(i)changes in fair value for investments in publicly traded companies,
(ii)changes in NAV, as a practical expedient to estimate fair value, for investments in privately held entities that report NAV, and/or
(iii)observable price changes of our investments in privately held entities that do not report NAV.
An observable price arises from an orderly transaction for an identical or similar investment of the same issuer. Observable price changes result from, among other things, equity transactions of the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions related to the same issuer. To determine whether these transactions are indicative of an observable price change, we evaluate, among other factors, whether these transactions have similar rights and obligations, including voting rights, distribution preferences, and conversion rights to the investments we hold.
F-34
7. INVESTMENTS (continued)
Realized gains and losses represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost. Impairments are realized losses, which result in an adjusted cost, and represent charges to reduce the carrying values of investments in privately held entities that do not report NAV to their estimated fair value.
The following tables summarize our investments as of December 31, 2020, and 2019 (in thousands):
| December 31, 2020 | |||||||||||||||||
| Cost | Unrealized Gains (Losses) | Carrying Amount | |||||||||||||||
| Investments: | |||||||||||||||||
| Publicly traded companies | $ | 208,754 | $ | 351,076 | $ | 559,830 | |||||||||||
| Entities that report NAV | 334,341 | 327,741 | 662,082 | ||||||||||||||
| Entities that do not report NAV: | |||||||||||||||||
| Entities with observable price changes | 47,545 | 96,859 | 144,404 | ||||||||||||||
| Entities without observable price changes | 244,798 | — | 244,798 | ||||||||||||||
| Total investments | $ | 835,438 | $ | 775,676 | $ | 1,611,114 |
| December 31, 2019 | |||||||||||||||||
| Cost | Unrealized Gains (Losses) | Carrying Amount | |||||||||||||||
| Investments: | |||||||||||||||||
| Publicly traded companies | $ | 148,109 | $ | 170,528 | $ | 318,637 | |||||||||||
| Entities that report NAV | 271,276 | 162,626 | 433,902 | ||||||||||||||
| Entities that do not report NAV: | |||||||||||||||||
| Entities with observable price changes | 42,045 | 68,489 | 110,534 | ||||||||||||||
| Entities without observable price changes | 277,521 | — | 277,521 | ||||||||||||||
| Total investments | $ | 738,951 | $ | 401,643 | $ | 1,140,594 |
Cumulative gains and losses on investments in privately held entities that do not report NAV still held as of December 31, 2020, aggregated to a gain of $66.8 million, which consisted of upward adjustments of $97.2 million and downward adjustments and impairments of $30.4 million.
Our investment income for the years ended December 31, 2020, 2019, and 2018, consisted of the following (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||||||
| Realized gains | $ | 47,288 | $ | 33,158 | $ | 37,129 | ||||||||||||||
| Unrealized gains | 374,033 | 161,489 | 99,634 | |||||||||||||||||
| Investment income | $ | 421,321 | $ | 194,647 | $ | 136,763 | ||||||||||||||
During the year ended December 31, 2020, gains and losses on investments in privately held entities that do not report NAV still held at December 31, 2020, aggregated to a gain of $3.1 million, which consisted of upward adjustments of $36.7 million and downward adjustments and impairments of $33.6 million.
During the year ended December 31, 2019, gains and losses on investments in privately held entities that do not report NAV still held at December 31, 2019, aggregated to a loss of $12.7 million, which consisted of downward adjustments and impairments of $18.0 million and upward adjustments of $5.2 million.
During the year ended December 31, 2018, gains and losses on investments in privately held entities that do not report NAV still held at December 31, 2018, aggregated to a gain of $58.6 million, which consisted of upward adjustments of $64.3 million and downward adjustments and impairments of $5.7 million.
Unrealized gains related to investments still held at December 31, 2020, 2019, and 2018, aggregated $392.7 million, $184.6 million, and $114.4 million during the years ended December 31, 2020, 2019, and 2018, respectively.
F-35
7. INVESTMENTS (continued)
Refer to the “Investments” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements for additional information.
Investments in privately held entities that report NAV
We are committed to funding approximately $210.6 million for all investments in privately held entities primarily related to our investments in limited partnerships. Our funding commitments expire at various dates over the next 11 years, with a weighted-average expiration of 8.3 years as of December 31, 2020. These investments are not redeemable by us, but we may receive distributions from these investments throughout their term. Our investments in privately held entities that report NAV generally have expected initial terms in excess of 10 years. The weighted-average remaining term during which these investments are expected to be liquidated was 5.1 years as of December 31, 2020.
8. OTHER ASSETS
The following table summarizes the components of other assets as of December 31, 2020 and 2019 (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Acquired in-place leases | $ | 462,324 | $ | 281,650 | |||||||
| Deferred compensation plan | 31,057 | 22,225 | |||||||||
| Deferred financing costs – unsecured senior line of credit | 24,124 | 13,064 | |||||||||
| Deposits | 13,861 | 31,028 | |||||||||
| Furniture, fixtures, and equipment | 31,130 | 23,031 | |||||||||
| Net investment in direct financing lease | 37,840 | 39,916 | |||||||||
| Notes receivable | 3,424 | 435 | |||||||||
| Operating lease right-of-use asset | 335,920 | 264,709 | |||||||||
| Other assets | 30,620 | 32,040 | |||||||||
| Prepaid expenses | 67,667 | 11,324 | |||||||||
| Property, plant, and equipment | 153,614 | 174,292 | |||||||||
| Total | $ | 1,191,581 | $ | 893,714 |
9. FAIR VALUE MEASUREMENTS
We provide fair value information about all financial instruments for which it is practicable to estimate fair value. We measure and disclose the estimated fair value of financial assets and liabilities by 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 (Level 1), (ii) significant other observable inputs (Level 2), and (iii) significant unobservable inputs (Level 3). 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. 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.
Assets and liabilities measured at fair value on a recurring basis
The following table sets forth the assets that we measure at fair value on a recurring basis by level in the fair value hierarchy (in thousands). There were no liabilities measured at fair value on a recurring basis as of December 31, 2020, and 2019. In addition, there were no transfers of assets measured at fair value on a recurring basis to or from Level 3 in the fair value hierarchy during the year ended December 31, 2020.
F-36
9. FAIR VALUE MEASUREMENTS (continued)
| Fair Value Measurement Using | ||||||||||||||||||||||||||
| Description | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Investments in publicly traded companies: | ||||||||||||||||||||||||||
| As of December 31, 2020 | $ | 559,830 | $ | 559,830 | $ | — | $ | — | ||||||||||||||||||
| As of December 31, 2019 | $ | 318,637 | $ | 318,637 | $ | — | $ | — |
Our investments in publicly traded companies represent investments with readily determinable fair values, and are carried at fair value, with changes in fair value classified in net income. We also hold investments in privately held entities, which consist of (i) investments that report NAV, and (ii) investments that do not report NAV, as further described below.
Our investments in privately held entities that report NAV, such as our privately held investments in limited partnerships, are carried at fair value using NAV as a practical expedient, with changes in fair value classified in net income. As of December 31, 2020 and 2019, the carrying values of investments in privately held entities that report NAV aggregated $662.1 million and $433.9 million, respectively. These investments are excluded from the fair value hierarchy above as required by the fair value accounting standards. We estimate the fair value of each of our investments in limited partnerships based on the most recent NAV reported by each limited partnership. As a result, the determination of fair values of our investments in privately held entities that report NAV generally does not involve significant estimates, assumptions, or judgments.
Assets and liabilities measured at fair value on a nonrecurring basis
On January 1, 2020, we adopted a new accounting standard described within the “Investments” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements. Beginning in 2020, in accordance with this new accounting standard, we provide fair value disclosures, including disclosures about the level in the fair value hierarchy, for our investments in privately held entities that do not report NAV, which were adjusted to their fair value by applying the measurement alternative described within the “Investments” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements.
The following table sets forth the assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of December 31, 2020 (in thousands). These investments were measured at various times during the period from January 1, 2018, to December 31, 2020.
| Fair Value Measurement Using | ||||||||||||||||||||||||||||||||
| Description | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| Investments in privately held entities that do not report NAV | $ | 157,871 | $ | — | $ | 144,404 | (1) | $ | 13,467 | (2) | ||||||||||||||||||||||
(1)This balance represents the total carrying amount of our equity investments in privately held entities with observable price changes, included in our total investments balance of $1.6 billion in our consolidated balance sheets as of December 31, 2020. For more information, refer to Note 7 – “Investments” to our consolidated financial statements.
(2)This amount is included in the $244.8 million balance of investments in privately held entities without observable price changes disclosed in Note 7 – “Investments” to our consolidated financial statements and represents the carrying amount of investments in privately held entities that do not report NAV for which impairments have been recognized in accordance with the measurement alternative guidance described within the “Investments” section in Note 2 – “Summary of significant accounting policies” to our consolidated financial statements.
Our investments in privately held entities that do not report NAV are measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income. These investments are evaluated on a nonrecurring basis based on the observable price changes in orderly transactions for the identical or similar investment of the same issuer. Further adjustments are not made until another observable transaction occurs. Therefore, the determination of fair values of our investments in privately held entities that do not report NAV does not involve significant estimates and assumptions or subjective and complex judgments.
We also subject our investments in privately held entities that do not report NAV to a qualitative assessment for indicators of impairment. If indicators of impairment are present, we are required to estimate the investment’s fair value and immediately recognize an impairment charge in an amount equal to the investment’s carrying value in excess of its estimated fair value.
The estimates of fair value typically incorporate valuation techniques that include an income approach reflecting a discounted cash flow analysis, and a market approach that includes a comparative analysis of acquisition multiples and pricing multiples generated by market participants. In certain instances, we may use multiple valuation techniques for a particular investment and estimate its fair value based on an average of multiple valuation results.
F-37
9. FAIR VALUE MEASUREMENTS (continued)
Refer to the “Formation of consolidated real estate joint ventures, impairment of an unconsolidated real estate joint venture, and sales of partial interests” section in Note 4 – “Consolidated and unconsolidated real estate joint ventures,” Note 7 – “Investments,” and Note 18 – “Assets classified as held for sale” to our consolidated financial statements for further discussion on assets and liabilities measured at fair value on a nonrecurring basis.
The carrying values of cash and cash equivalents, restricted cash, tenant receivables, deposits, notes receivable, accounts payable, accrued expenses, and other short-term liabilities approximate their fair value.
The fair values of our secured notes payable, unsecured senior notes payable, unsecured senior line of credit, and commercial paper were estimated using widely accepted valuation techniques, including discounted cash flow analyses using 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 December 31, 2020 and 2019, the book and estimated fair values of our secured notes payable, unsecured senior notes payable, unsecured senior line of credit, and amounts outstanding under our commercial paper program were as follows (in thousands):
| December 31, 2020 | |||||||||||||||||||||||||||||
| Book Value | Fair Value Hierarchy | Estimated Fair Value | |||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Secured notes payable | $ | 230,925 | $ | — | $ | 249,782 | $ | — | $ | 249,782 | |||||||||||||||||||
| Unsecured senior notes payable | $ | 7,232,370 | $ | — | $ | 8,447,845 | $ | — | $ | 8,447,845 | |||||||||||||||||||
| Unsecured senior line of credit | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
| Commercial paper program | $ | 99,991 | $ | — | $ | 99,998 | $ | — | $ | 99,998 |
| December 31, 2019 | |||||||||||||||||||||||||||||
| Book Value | Fair Value Hierarchy | Estimated Fair Value | |||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Secured notes payable | $ | 349,352 | $ | — | $ | 363,344 | $ | — | $ | 363,344 | |||||||||||||||||||
| Unsecured senior notes payable | $ | 6,044,127 | $ | — | $ | 6,571,668 | $ | — | $ | 6,571,668 | |||||||||||||||||||
| Unsecured senior line of credit | $ | 384,000 | $ | — | $ | 383,928 | $ | — | $ | 383,928 |
F-38
10. SECURED AND UNSECURED SENIOR DEBT
The following table summarizes our outstanding indebtedness and respective principal payments as of December 31, 2020 (dollars in thousands):
| Stated Rate | Interest Rate (1) | Maturity Date (2) | Principal Payments Remaining for the Periods Ending December 31, | Unamortized (Deferred Financing Cost), (Discount) Premium | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Principal | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured notes payable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Greater Boston | 4.82 | % | 3.40 | % | 2/6/24 | $ | 3,394 | $ | 3,564 | $ | 3,742 | $ | 183,527 | $ | — | $ | — | $ | 194,227 | 8,344 | $ | 202,571 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| San Francisco | 4.14 | % | 4.42 | 7/1/26 | — | — | — | — | — | 28,200 | 28,200 | (549) | 27,651 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| San Francisco | 6.50 | % | 6.50 | 7/1/36 | 26 | 28 | 30 | 32 | 34 | 553 | 703 | — | 703 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured debt weighted average interest rate/subtotal | 4.74 | % | 3.53 | 3,420 | 3,592 | 3,772 | 183,559 | 34 | 28,753 | 223,130 | 7,795 | 230,925 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper program(3) | 0.27 | % | (3) | 0.29 | (3) | (3) | — | (3) | — | — | — | — | 100,000 | (3) | 100,000 | (9) | 99,991 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior line of credit | L+0.825 | % | N/A | 1/6/26 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable – green bond | 4.00 | % | 4.03 | 1/15/24 | — | — | — | 650,000 | — | — | 650,000 | (356) | 649,644 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 3.45 | % | 3.62 | 4/30/25 | — | — | — | — | 600,000 | — | 600,000 | (3,804) | 596,196 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 4.30 | % | 4.50 | 1/15/26 | — | — | — | — | — | 300,000 | 300,000 | (2,465) | 297,535 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable – green bond | 3.80 | % | 3.96 | 4/15/26 | — | — | — | — | — | 350,000 | 350,000 | (2,599) | 347,401 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 3.95 | % | 4.13 | 1/15/27 | — | — | — | — | — | 350,000 | 350,000 | (3,062) | 346,938 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 3.95 | % | 4.07 | 1/15/28 | — | — | — | — | — | 425,000 | 425,000 | (2,986) | 422,014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 4.50 | % | 4.60 | 7/30/29 | — | — | — | — | — | 300,000 | 300,000 | (1,908) | 298,092 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 2.75 | % | 2.87 | 12/15/29 | — | — | — | — | — | 400,000 | 400,000 | (3,688) | 396,312 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 4.70 | % | 4.81 | 7/1/30 | — | — | — | — | — | 450,000 | 450,000 | (3,535) | 446,465 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 4.90 | % | 5.05 | 12/15/30 | — | — | — | — | — | 700,000 | 700,000 | (7,843) | 692,157 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 3.375 | % | 3.48 | 8/15/31 | — | — | — | — | — | 750,000 | 750,000 | (6,897) | 743,103 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 1.875 | % | 1.97 | 2/1/33 | — | — | — | — | — | 1,000,000 | 1,000,000 | (10,559) | 989,441 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 4.85 | % | 4.93 | 4/15/49 | — | — | — | — | — | 300,000 | 300,000 | (3,332) | 296,668 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured senior notes payable | 4.00 | % | 3.91 | 2/1/50 | — | — | — | — | — | 700,000 | 700,000 | 10,404 | 710,404 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured debt weighted average interest rate/subtotal | 3.76 | — | — | — | 650,000 | 600,000 | 6,125,000 | 7,375,000 | (42,639) | 7,332,361 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted-average interest rate/total | 3.76 | % | $ | 3,420 | $ | 3,592 | $ | 3,772 | $ | 833,559 | $ | 600,034 | $ | 6,153,753 | $ | 7,598,130 | $ | (34,844) | $ | 7,563,286 |
(1)Represents the weighted-average interest rate as of the end of the applicable period, including amortization of loan fees, amortization of debt premiums (discounts), and other bank fees.
(2)Reflects any extension options that we control.
(3)Refer to footnote 2 on the next page.
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10. SECURED AND UNSECURED SENIOR DEBT (continued)
The following table summarizes our secured and unsecured senior debt as of December 31, 2020 (dollars in thousands):
| Fixed-Rate Debt | Variable-Rate Debt | Weighted-Average | ||||||||||||||||||||||||||||||||||||
| Interest Rate(1) | Remaining Term (in years) | |||||||||||||||||||||||||||||||||||||
| Total | Percentage | |||||||||||||||||||||||||||||||||||||
| Secured notes payable | $ | 230,925 | $ | — | $ | 230,925 | 3.1 | % | 3.53 | % | 3.4 | |||||||||||||||||||||||||||
| Unsecured senior notes payable | 7,232,370 | — | 7,232,370 | 95.6 | 3.81 | 10.9 | ||||||||||||||||||||||||||||||||
| Unsecured senior line of credit | — | — | — | — | N/A | 5.0 | ||||||||||||||||||||||||||||||||
| Commercial paper program | — | 99,991 | 99,991 | 1.3 | 0.29 | (2) | ||||||||||||||||||||||||||||||||
| Total/weighted average | $ | 7,463,295 | $ | 99,991 | $ | 7,563,286 | 100.0 | % | 3.76 | % | 10.6 | (2) | ||||||||||||||||||||||||||
| Percentage of total debt | 99 | % | 1 | % | 100 | % |
(1)Represents the weighted-average interest rate as of the end of the applicable period, including expense/income related to the amortization of loan fees, amortization of debt premiums (discounts), and other bank fees.
(2)The commercial paper notes bear interest at short-term fixed rates and can generally be issued with a maturity of 30 days or less and with a maximum maturity of 397 days from the date of issuance. Borrowings under the program are used to fund short-term capital needs and are backed by our unsecured senior line of credit. The commercial paper outstanding as of December 31, 2020, matured on January 13, 2021. In the event we are unable to issue commercial paper notes or refinance outstanding borrowings under terms equal to or more favorable than those under our unsecured senior line of credit, we expect to borrow under the unsecured senior line of credit at L+0.825%. As such, we calculate the weighted-average remaining term of our commercial paper using the maturity date of our unsecured senior line of credit. Using the maturity date of our outstanding commercial paper, the consolidated weighted-average maturity of our debt remains at 10.6 years. The commercial paper notes sold during the three months ended December 31, 2020, were issued at a weighted-average yield to maturity of 0.26% and had a weighted-average maturity term of 12 days.
Unsecured senior line of credit
We use our unsecured senior line of credit to fund working capital, construction activities, and, from time to time, acquisition of properties. Borrowings under the unsecured senior line of credit bear interest at a “Eurocurrency Rate,” a “LIBOR Floating Rate,” or a “Base Rate” specified in the amended unsecured senior line of credit agreement plus, in any case, the Applicable Margin. The Eurocurrency Rate specified in the amended unsecured senior line of credit agreement is, as applicable, the rate per annum equal to either (i) the LIBOR or a successor rate thereto as agreed to by the administrative agent and the Company 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 LIBOR Floating Rate means, for any day, one-month LIBOR, or a successor rate thereto as agreed to by the administrative agent and the Company for loans denominated in U.S. dollars. The Base Rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 1/2 of 1.00%, (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (iii) the Eurocurrency Rate plus 1.00%. Our unsecured senior line of credit contains a feature that allows lenders to competitively bid on the interest rate for borrowings under the facility. This may result in an interest rate that is below the stated rate. In addition to the cost of borrowing, the facility is subject to an annual facility fee of 0.15% based on the aggregate commitments outstanding.
On October 6, 2020, we amended our unsecured senior line of credit and recognized a loss on early extinguishment of debt of $651 thousand related to the write-off of unamortized loan fees. Among other things, the amended credit agreement includes a 0% LIBOR floor on the interest rate and is subject to certain annual sustainability measures entitling us to a temporary reduction in the interest rate margin of one basis point, but not below zero percent per year. Other key changes are summarized below:
| New Agreement | Change | |||||||||||||
| Commitments available for borrowing | $3.0 billion | Increased by $800 million | ||||||||||||
| Interest rate | LIBOR+0.825% | Added a 0% LIBOR floor | ||||||||||||
| Maturity date | January 6, 2026 | Extended 2 years |
$750 million unsecured senior line of credit
In April 2020, we closed an additional unsecured senior line of credit with $750.0 million of available commitments, which had a maturity date of April 14, 2022, and bore interest at LIBOR plus 1.05%. In addition to the cost of borrowing, this line of credit was subject to an annual facility fee of 0.20% based on the aggregate commitment outstanding.
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10. SECURED AND UNSECURED SENIOR DEBT (continued)
The terms of the $750.0 million unsecured senior line of credit agreement required that the outstanding commitments be reduced by 100% of net cash proceeds from certain new debt transactions and 50% of net cash proceeds from new equity offerings as defined in the agreement. In August 2020, we received cash proceeds from the issuance of our $1.0 billion 1.875% Unsecured Senior Notes, and, pursuant to the terms of the $750.0 million unsecured senior line of credit agreement, all outstanding commitments from the additional line of credit were reduced to zero, and we terminated this facility. During the three months ended September 30, 2020, we wrote off unamortized fees related to the terminated facility aggregating $1.9 million, which is classified within loss on early extinguishment of debt in our consolidated statements of operations.
$1.5 billion commercial paper program
In September 2019, we established a $750.0 million commercial paper program, which received credit ratings of A-2 from S&P Global Ratings and Prime-2 from Moody’s Investors Service. During 2020, we increased the aggregate amount we may issue from time to time under our commercial paper program from $750.0 million to $1.5 billion. Under this program, commercial paper notes can generally be issued with a maturity of 30 days or less and with a maximum maturity of 397 days from the date of issuance. Our commercial paper program is backed by our unsecured senior line of credit, and at all times we expect to retain a minimum undrawn amount of borrowing capacity under our unsecured senior line of credit equal to any outstanding notes issued under our commercial paper program. We use the net proceeds from the issuances of the notes for general working capital and other general corporate purposes. General corporate purposes may include, but are not limited to, the repayment of other debt and selective development, redevelopment, or acquisition of properties.
During the three months ended December 31, 2020, we issued commercial paper notes at a weighted-average yield to maturity of 0.26%. As of December 31, 2020, we had $100.0 million of outstanding notes under our commercial paper program.
Unsecured senior notes payable
As of December 31, 2020, we have unsecured senior notes payable aggregating $7.2 billion, which are unsecured obligations of the Company and are fully and unconditionally guaranteed by Alexandria Real Estate Equities, L.P., a 100% owned subsidiary of the Company. The unsecured senior notes payable rank equally in right of payment with all other senior unsecured indebtedness. However, the unsecured senior notes payable are subordinate to existing and future mortgages and other secured indebtedness (to the extent of the value of the collateral securing such indebtedness) and to all existing and future preferred equity and liabilities, whether secured or unsecured, of the Company’s subsidiaries, other than Alexandria Real Estate Equities, L.P. 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.
In March 2020, we completed an offering of $700.0 million of unsecured senior notes payable due on December 15, 2030, at an interest rate of 4.90% for net proceeds of $691.6 million. The net proceeds were used to reduce the outstanding indebtedness under our unsecured senior line of credit and commercial paper program.
In August 2020, we completed an offering of $1.0 billion of unsecured senior notes payable due on February 1, 2033, at an interest rate of 1.875% for net proceeds of $989.1 million (“1.875% Unsecured Senior Notes”). A portion of the proceeds was used to refinance our 3.90% unsecured senior notes payable due in 2023, aggregating $500.0 million, pursuant to a partial cash tender offer completed on August 5, 2020, and a subsequent call for redemption for the remaining outstanding amounts. The redemption was settled on September 4, 2020. The remaining proceeds were used to fund pending and recently completed acquisitions and construction of our highly leased development and redevelopment projects. As a result of our debt refinancing, we recognized a loss on early extinguishment of debt of $50.8 million, including the write-off of unamortized loan fees.
Since January 1, 2019, we have completed the issuances of $4.4 billion in unsecured senior notes, with a weighted-average interest rate of 3.48% and a weighted-average maturity of 14.1 years as of December 31, 2020.
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10. SECURED AND UNSECURED SENIOR DEBT (continued)
Extinguishment of unsecured senior notes payable, unsecured senior line of credit, and secured notes payable
During the year ended December 31, 2020, we extinguished the following debt and recognized losses on early extinguishment of debt, as described below:
-
Refinanced our 3.90% unsecured senior notes payable due in 2023 aggregating $500.0 million and recognized a loss on early extinguishment of debt aggregating $50.8 million, including the write-off of unamortized loan fees.
-
Terminated our $750.0 million unsecured senior line of credit and recognized a loss on early extinguishment of debt aggregating $1.9 million.
-
Repaid our secured note payable aggregating $78.0 million in December 2020, originally due in 2023 with an effective interest rate of 3.19%, and recognized a loss on early extinguishment of debt aggregating $4.5 million.
-
Extinguished our secured note payable aggregating $30.2 million due in 2023 with an effective interest rate of 4.90%, which was repaid in December 2020 via a legal defeasance and recognized a loss on early extinguishment of debt of $2.8 million.
Interest expense
The following table summarizes interest expense for the years ended December 31, 2020, 2019, and 2018 (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||||||
| Interest incurred | $ | 297,227 | $ | 262,238 | $ | 223,715 | ||||||||||||||
| Capitalized interest | (125,618) | (88,563) | (66,220) | |||||||||||||||||
| Interest expense | $ | 171,609 | $ | 173,675 | $ | 157,495 |
11. ACCOUNTS PAYABLE, ACCRUED EXPENSES, AND OTHER LIABILITIES
The following table summarizes the components of accounts payable, accrued expenses, and other liabilities as of December 31, 2020 and 2019 (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Accounts payable and accrued expenses | $ | 285,021 | $ | 198,994 | |||||||
| Accrued construction | 333,271 | 275,818 | |||||||||
| Acquired below-market leases | 288,075 | 194,773 | |||||||||
| Conditional asset retirement obligations | 47,070 | 14,037 | |||||||||
| Deferred rent liabilities | 4,495 | 2,897 | |||||||||
| Operating lease liability | 345,750 | 271,808 | |||||||||
| Unearned rent and tenant security deposits | 276,751 | 275,863 | |||||||||
| Other liabilities | 89,399 | 86,078 | |||||||||
| Total | $ | 1,669,832 | $ | 1,320,268 |
As of December 31, 2020 and 2019, our conditional asset retirement obligations liability primarily consisted of the soil and groundwater remediation liabilities associated with certain of our properties. Some of our properties may contain asbestos or may be subjected to other hazardous or toxic substances, which, under certain conditions, require remediation. We engage independent environmental consultants to conduct Phase I or similar environmental assessments at our properties. This type of assessment generally includes a site inspection, interviews, and a public records review, asbestos, lead-based paint and mold surveys, subsurface sampling, and other testing. 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, environmental laws and regulations subject our tenants, and potentially us, to liability that may result from our tenants’ routinely handling hazardous substances and wastes as part of their operations at our properties. These assessments and investigations of our properties have not to date revealed any additional environmental liability that we believe would have a material adverse effect on our business and financial statements, or would require additional disclosures or recognition in our financial statements.
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12. EARNINGS PER SHARE
From time to time, we enter into forward equity sales agreements, which are discussed in Note 15 – “Stockholders’ equity” to our consolidated financial statements. We considered the potential dilution resulting from the forward equity sales agreements on the EPS calculations. At inception, the agreements do not have an effect on the computation of basic EPS as no shares are delivered until settlement. The common shares issued upon the settlement of the forward equity sales agreements, weighted for the period these common shares were outstanding, are included in the denominator of basic EPS. To determine the dilution resulting from the forward equity sales agreements during the period of time prior to settlement, we calculate the number of weighted-average shares outstanding – diluted using the treasury stock method.
In October 2019, we elected to convert 2.3 million outstanding shares of our 7.00% Series D convertible preferred stock (“Series D Convertible Preferred Stock”) into shares of our common stock. As of December 31, 2020, we had no shares of our Series D Convertible Preferred Stock outstanding. For the period in 2019 during which our Series D Convertible Preferred Stock was outstanding, we calculated the number of weighted-average shares outstanding – diluted using the if-converted method. Shares of Alexandria Real Estate Equities, Inc.’s common shares issued upon conversion, weighted for the period the common shares were outstanding, were included in the denominator for the period after the date of conversion.
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 forward equity sales agreements are not participating securities and are therefore not included in the computation of EPS using the two-class method. Under the two-class method, we allocate net income (after amounts attributable to noncontrolling interests, dividends on preferred stock, and preferred stock redemption charge) to common stockholders and unvested restricted stock awards by using the weighted-average shares of each class outstanding for quarter-to-date and year-to-date periods independently, based on their respective participation rights to dividends declared (or accumulated) and undistributed earnings.
The table below is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the years ended December 31, 2020, 2019, and 2018 (in thousands, except per share amounts):
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income | $ | 827,171 | $ | 404,047 | $ | 402,793 | |||||||||||
| Net income attributable to noncontrolling interests | (56,212) | (40,882) | (23,481) | ||||||||||||||
| Dividends on preferred stock | — | (3,204) | (5,060) | ||||||||||||||
| Preferred stock redemption charge | — | (2,580) | (4,240) | ||||||||||||||
| Net income attributable to unvested restricted stock awards | (10,168) | (6,386) | (6,029) | ||||||||||||||
| Numerator for basic and diluted EPS – net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 760,791 | $ | 350,995 | $ | 363,983 | |||||||||||
| Denominator for basic EPS – weighted-average shares of common stock outstanding | 126,106 | 112,204 | 103,010 | ||||||||||||||
| Dilutive effect of forward equity sales agreements | 384 | 320 | 311 | ||||||||||||||
| Denominator for diluted EPS – weighted-average shares of common stock outstanding | 126,490 | 112,524 | 103,321 | ||||||||||||||
| Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders: | |||||||||||||||||
| Basic | $ | 6.03 | $ | 3.13 | $ | 3.53 | |||||||||||
| Diluted | $ | 6.01 | $ | 3.12 | $ | 3.52 |
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13. INCOME TAXES
We have elected to be taxed as a REIT, under the Internal Revenue Code of 1986, as amended, or the Code. We believe we have qualified and continue to qualify as a REIT. 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, local, and foreign taxes. We distribute 100% of our taxable income annually; therefore, a provision for federal income taxes is not required.
We distributed all of our REIT taxable income in 2019 and 2018 and, as a result, did not incur federal income tax in those years on such income. For the year ended December 31, 2020, we expect our distributions to exceed our REIT taxable income and, as a result, do not expect to incur federal income tax. We expect to finalize our 2020 REIT taxable income when we file our 2020 federal income tax return in 2021.
The income tax treatment of distributions and dividends declared on our common stock and our Series D Convertible Preferred Stock for the years ended December 31, 2020, 2019, and 2018, was as follows (unaudited):
| Common Stock | Series D Convertible Preferred Stock(1) | ||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
| Ordinary income | 65.7 | % | 62.4 | % | 69.9 | % | 64.4 | % | 72.7 | % | |||||||||||||||||||
| Return of capital | 13.2 | 3.2 | 3.8 | — | — | ||||||||||||||||||||||||
| Capital gains at 25% | — | 2.2 | 0.1 | 2.2 | 0.1 | ||||||||||||||||||||||||
| Capital gains at 20% | 21.1 | 32.2 | 26.2 | 33.4 | 27.2 | ||||||||||||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||
| Dividends declared | $ | 4.24 | $ | 4.00 | $ | 3.73 | $ | 1.3125 | $ | 1.75 |
(1)Refer to Note 15 – “Stockholders’ equity” to our consolidated financial statements for information regarding the conversion of our Series D Convertible Preferred Stock.
Beginning in 2018, the Tax Cuts and Jobs Act of 2017 added Section 199A to allow for a new tax deduction based on certain qualified business income. Section 199A provides eligible individual taxpayers a deduction of up to 20% of their qualified REIT dividends.
Our dividends declared in a given quarter are generally paid during the subsequent quarter. The taxability information presented above for our dividends paid in 2020 is based upon management’s estimate. Our federal tax return for 2020 is due on or before October 15, 2021, assuming we file for an extension of the due date. Our federal tax returns for previous tax years have not been examined by the IRS. Consequently, the taxability of distributions and dividends is subject to change.
In addition to our REIT tax 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 and may be subject to audits, assessments, or other actions by local taxing authorities. We recognize tax benefits of uncertain tax positions only if it is more likely than not that the tax position will be sustained, based solely on its technical merits, with the taxing authority having full knowledge of all relevant information. The measurement of a tax benefit for an uncertain tax position that meets the “more likely than not” threshold is based on a cumulative probability model under which the largest amount of tax benefit recognized is the amount with a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority that has full knowledge of all relevant information.
As of December 31, 2020, there were no material unrecognized tax benefits. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
Interest expense and penalties, if any, are recognized in the first period during which the interest or penalties begin accruing, according to the provisions of the relevant tax law at the applicable statutory rate of interest. We did not incur any significant tax-related interest expense or penalties for the years ended December 31, 2020, 2019, and 2018.
F-44
13. INCOME TAXES (continued)
The following reconciles net income (determined in accordance to GAAP) to taxable income as filed with the IRS for the years ended December 31, 2019 and 2018 (in thousands and unaudited):
| Year Ended December 31, | ||||||||||||||
| 2019 | 2018 | |||||||||||||
| Net income | $ | 404,047 | $ | 402,793 | ||||||||||
| Net income attributable to noncontrolling interests | (40,882) | (23,481) | ||||||||||||
| Book/tax differences: | ||||||||||||||
| Rental revenue recognition | (132,979) | (65,901) | ||||||||||||
| Depreciation and amortization | 177,627 | 161,514 | ||||||||||||
| Share-based compensation | 30,756 | 30,771 | ||||||||||||
| Interest expense | (13,687) | (6,414) | ||||||||||||
| Sales of property | 66,717 | (39,393) | ||||||||||||
| Impairments | 12,334 | — | ||||||||||||
| Non-real estate investment income | (96,353) | (110,322) | ||||||||||||
| Other | 7,565 | 9,522 | ||||||||||||
| Taxable income before dividend deduction | 415,145 | 359,089 | ||||||||||||
| Dividend deduction necessary to eliminate taxable income(1) | (415,145) | (359,089) | ||||||||||||
| Estimated income subject to federal income tax | $ | — | $ | — |
(1)Total common stock and preferred stock dividend distributions paid were approximately $451.2 million and $385.8 million during the years ended December 31, 2019 and 2018, respectively.
14. COMMITMENTS AND CONTINGENCIES
Employee retirement savings plan
We have a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code (the “Code) whereby our employees may contribute a portion of their compensation to their respective retirement accounts in an amount not to exceed the maximum allowed under the Code. In addition to employee contributions, we have elected to provide company discretionary profit-sharing contributions (subject to statutory limitations), which amounted to approximately $6.2 million, $4.9 million, and $4.1 million for the years ended December 31, 2020, 2019, and 2018, respectively. Employees who participate in the plan are immediately vested in their contributions and in the contributions made on their behalf by the Company.
Concentration of credit risk
We maintain our cash and cash equivalents at insured financial institutions. The combined account balances at each institution periodically exceed the FDIC insurance coverage of $250,000, and, as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. We have not experienced any losses to date on our invested cash.
We are dependent on rental revenue from relatively few tenants. The inability of any single tenant to make its lease payments could adversely affect our operations. As of December 31, 2020, we had 909 leases with a total of 670 tenants, and 167, or 49%, of our 338 properties were each leased to a single tenant. As of December 31, 2020, our three largest tenants, accounted for 3.7%, 2.8%, and 2.7% of our aggregate annual rental revenue individually, or 9.2% in the aggregate.
Commitments
As of December 31, 2020, remaining aggregate costs under contract for the construction of properties undergoing development, redevelopment, and improvements under the terms of leases approximated $1.2 billion. We expect payments for these obligations to occur over one year 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. In addition, we have letters of credit and performance obligations aggregating $11.1 million primarily related to construction projects.
We are committed to funding approximately $210.6 million for non-real estate investments primarily related to our investments in limited partnerships. Our funding commitments expire at various dates over the next 11 years, with a weighted-average remaining period of 8.3 years as of December 31, 2020.
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15. STOCKHOLDERS’ EQUITY
Common equity transactions
During the year ended December 31, 2020, we completed issuances and executed forward equity sales agreements for an aggregate of 15.7 million shares of common stock, including the exercise of an underwriters’ option, for aggregate net proceeds of approximately $2.4 billion, as follows:
-
In January 2020 and July 2020, we entered into forward equity sales agreements aggregating $1.0 billion and $1.1 billion, respectively, to sell an aggregate of 6.9 million shares for each offering (13.8 million in aggregate) of our common stock, including the exercise of underwriters’ options, at public offering prices of $155.00 per share and $160.50 per share, respectively, before underwriting discounts. During 2020, we issued all 13.8 million shares under these forward equity sales agreements and received net proceeds of $2.1 billion.
-
In February 2020, we entered into an ATM common stock offering program, which allowed us to sell up to an aggregate of $850.0 million of our common stock.
-
We issued 1.5 million shares of common stock under our ATM program at a price of $159.09 per share (before underwriting discounts), and received net proceeds of $235.0 million during 2020.
-
We have 362 thousand shares under our ATM program subject to forward equity sales agreements that remain outstanding at a price of $159.09 per share (before underwriting discounts) as of December 31, 2020. We expect to settle these forward equity sales agreements in 2021 and receive net proceeds of approximately $56.3 million.
-
The remaining availability of $547.3 million under this ATM program expired in December 2020 concurrently with the expiration of the associated shelf registration. In January 2021, we filed a new shelf registration and expect to establish a new ATM program soon in 2021.
7.00% Series D cumulative convertible preferred stock repurchases and conversion
As of December 31, 2020 and 2019, we had no outstanding shares of our Series D Convertible Preferred Stock. During the year ended December 31, 2019, we repurchased, in privately negotiated transactions, 275,000 outstanding shares of our Series D Convertible Preferred Stock at an aggregate price of $9.2 million, or $33.60 per share. We recognized a preferred stock redemption charge of $2.6 million during the year ended December 31, 2019, including the write-off of original issuance costs of approximately $215 thousand. Also, in September 2019, we had elected to convert the remaining 2.3 million outstanding shares of our Series D Convertible Preferred Stock into shares of our common stock. The Series D Convertible Preferred Stock became eligible for mandatory conversion at our discretion, at a set conversion rate of 0.2513 shares of common stock to one share of preferred stock, upon our common stock price’s exceeding $149.46 per share for the specified period of time required to cause the mandatory conversion. In October 2019, we converted the Series D Convertible Preferred Stock into 578 thousand shares of common stock. This conversion was accounted for as an equity transaction, and we did not recognize a gain or loss.
During the years ended December 31, 2019 and 2018, we declared cash dividends on our Series D Convertible Preferred Stock aggregating $3.2 million, or $1.3125 per share, and $5.1 million, or $1.75 per share, respectively.
Accumulated other comprehensive loss
The following table presents the changes in accumulated other comprehensive loss attributable to Alexandria Real Estate Equities, Inc.’s stockholders during the year ended December 31, 2020, which was entirely due to net unrealized gains on foreign currency translation related to our operations in Canada and China (in thousands):
| Total | ||||||||||||||||||||
| Balance as of December 31, 2019 | $ | (9,749) | ||||||||||||||||||
| Other comprehensive income before reclassifications | 3,124 | |||||||||||||||||||
| Net other comprehensive income | 3,124 | |||||||||||||||||||
| Balance as of December 31, 2020 | $ | (6,625) |
F-46
15. STOCKHOLDERS’ EQUITY (continued)
Common stock, preferred stock, and excess stock authorizations
Our charter authorizes the issuance of 200.0 million shares of common stock, of which 136.7 million shares were issued and outstanding as of December 31, 2020. Our charter also authorizes the issuance of up to 100.0 million shares of preferred stock, none of which were issued and outstanding as of December 31, 2020. 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 December 31, 2020.
Additional paid-in capital
During the year ended December 31, 2020, we sold partial interests in the following properties: (i) 681, 685, and 701 Gateway Boulevard in our South San Francisco submarket during the three months ended March 31, 2020, (ii) 9808 and 9868 Scranton Road in our Sorrento Mesa submarket during the three months ended June 30, 2020, and (iii) 1201 and 1208 Eastlake Avenue East and 199 East Blaine Street in our Lake Union submarket during the three months ended December 31, 2020. For the discussion of our sales of partial interests, refer to the “Formation of consolidated real estate joint ventures, impairment of an unconsolidated real estate joint venture, and sales of partial interests” section in Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements.
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16. SHARE-BASED COMPENSATION
Stock plan
For the purpose of attracting and retaining the highest-quality personnel, providing for additional incentives, and promoting the success of our Company, we have historically issued two forms of share-based compensation under our equity incentive plan: (i) options to purchase common stock and (ii) restricted stock. We have not granted any options since 2002. Each restricted share issued reduced our share reserve by three shares (3:1 ratio) prior to March 23, 2018, and by one share (1:1 ratio) on and after March 23, 2018. As of December 31, 2020, there were 3,080,980 shares reserved for the granting of future options and stock awards under the equity incentive plan.
In addition, our stock plan permits us to issue share awards to our employees, non-employees, and non-employee directors. A share award is an award of common stock that (i) may be fully vested upon issuance or (ii) may be subject to the risk of forfeiture under Section 83 of the Internal Revenue Code. Shares issued generally vest over a four-year period from the date of issuance, and the sale of the shares is restricted prior to the date of vesting. Certain time-based restricted share awards are also subject to an additional one-year holding period after vesting.The unearned portion of time-based awards is amortized as stock compensation expense on a straight-line basis over the vesting period. Certain restricted share awards are subject to vesting based upon the satisfaction of levels of performance and market conditions. Failure to satisfy the threshold performance conditions will result in the forfeiture of shares. Forfeiture of share awards with time-based or performance-based restrictions results in a reversal of previously recognized share-based compensation expense. Forfeiture of share awards with market-based restrictions does not result in a reversal of previously recognized share-based compensation expense.
The following is a summary of the stock awards activity under our equity incentive plan and related information for the years ended December 31, 2020, 2019, and 2018:
| Number of Share Awards | Weighted-Average Grant Date Fair Value Per Share | |||||||||||||||||||||||||
| Outstanding at December 31, 2017 | 1,394,582 | $ | 95.79 | |||||||||||||||||||||||
| Granted | 741,244 | $ | 121.20 | |||||||||||||||||||||||
| Vested | (403,120) | $ | 103.83 | |||||||||||||||||||||||
| Forfeited | (20,330) | $ | 106.38 | |||||||||||||||||||||||
| Outstanding at December 31, 2018 | 1,712,376 | $ | 105.22 | |||||||||||||||||||||||
| Granted | 768,625 | $ | 134.70 | |||||||||||||||||||||||
| Vested | (666,836) | $ | 96.77 | |||||||||||||||||||||||
| Forfeited | (14,480) | $ | 119.88 | |||||||||||||||||||||||
| Outstanding at December 31, 2019 | 1,799,685 | $ | 119.59 | |||||||||||||||||||||||
| Granted | 753,473 | $ | 147.71 | |||||||||||||||||||||||
| Vested | (688,599) | $ | 115.57 | |||||||||||||||||||||||
| Forfeited | (39,279) | $ | 117.76 | |||||||||||||||||||||||
| Outstanding at December 31, 2020 | 1,825,280 | $ | 132.95 | |||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||
| (In thousands) | 2020 | 2019 | 2018 | |||||||||||||||||||||||
| Total grant date fair value of stock awards vested | $ | 79,578 | $ | 64,530 | $ | 41,854 | ||||||||||||||||||||
| Total gross compensation recognized for stock awards | $ | 80,651 | $ | 68,036 | $ | 57,341 | ||||||||||||||||||||
| Capitalized stock compensation | $ | 37,149 | $ | 24,396 | $ | 22,322 |
Certain restricted stock awards granted during 2017 through 2020 are subject to performance and market conditions. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model using the following assumptions for 2020, 2019, and 2018, respectively: (i) expected term of 3.0 years, 3.0 years, and 3.0 years (equal to the remaining performance measurement period at the grant date), (ii) volatility of 17.0%, 18.0%, and 16.0% (approximating a blended average of implied and historical volatilities), (iii) dividend yield of 2.8%, 3.2%, and 3.1%, and (iv) risk-free rate of 1.63%, 2.60%, and 2.15%.
F-48
As of December 31, 2020, there was $193.1 million of unrecognized compensation related to unvested share awards under the equity incentive plan, which is expected to be recognized over the next four years and has a weighted-average vesting period of approximately 19 months.
17. NONCONTROLLING INTERESTS
Noncontrolling interests represent the third-party interests in certain entities in which we have a controlling interest. These entities owned 40 properties as of December 31, 2020, which 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 years ended December 31, 2020 and 2019, we distributed $87.3 million and $48.2 million, respectively, to our consolidated real estate joint venture partners.
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 our 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.
During the year ended December 31, 2020, we sold noncontrolling interests in the following properties:
-
55% interest in 681, 685, and 701 Gateway Boulevard in our South San Francisco submarket,
-
50% interest in 9808 and 9868 Scranton Road in our Sorrento Mesa submarket, and
-
70% interest in 1201 and 1208 Eastlake Avenue East and 199 East Blaine Street in our Lake Union submarket.
For detail, refer to the “Formation of consolidated real estate joint ventures, impairment of an unconsolidated real estate joint venture, and sales of partial interests” section in Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements.
18. ASSETS CLASSIFIED AS HELD FOR SALE
As of December 31, 2020, five properties aggregating 559,993 RSF were classified as held for sale in our consolidated financial statements, none of which met the criteria for classification as discontinued operations. Accordingly, we ceased depreciation of these properties upon their classification as held for sale.
During the year ended December 31, 2020, we recognized impairment charges aggregating $48.1 million, including $32.9 million to lower the carrying amounts of our real estate assets classified as held for sale during the year to their estimated fair values less costs to sell. These charges primarily related to the following real estate assets:
-
Impairment charge of $13.5 million recognized during the three months ended December 31, 2020, upon classification of our real estate assets located at 260 Townsend Street in our SoMa submarket as held for sale. We expect to sell this real estate asset during 2021.
-
Impairment charge of $11.7 million recognized during the three months ended December 31, 2020, upon classification of our real estate asset located at 220 and 240 2nd Avenue South in our SoDo submarket as held for sale. We expect to sell this real estate asset during 2021.
-
Impairment charge of $6.8 million recognized during the three months ended September 30, 2020, upon classification of our real estate asset located at 945 Market Street in our SoMa submarket as held for sale. In September 2020, we completed the sale of the real estate asset for a sales price of $198.0 million with no gain or loss.
F-49
18. ASSETS CLASSIFIED AS HELD FOR SALE (continued)
Refer to “Impairment of long-lived assets” in Note 2 – “Summary of significant account policies” to our consolidated financial statements for additional information.
The following is a summary of net assets as of December 31, 2020 and 2019, for our real estate investments that were classified as held for sale as of each respective date (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Total assets | $ | 117,879 | $ | 59,412 | |||||||
| Total liabilities | (33,081) | (2,860) | |||||||||
| Total accumulated other comprehensive (loss) income | (841) | 536 | |||||||||
| Net assets classified as held for sale | $ | 83,957 | $ | 57,088 |
F-50
19. QUARTERLY FINANCIAL DATA (unaudited)
The following is a summary of consolidated financial information on a quarterly basis for 2020 and 2019 (in thousands, except per share amounts):
| Quarter | |||||||||||||||||||||||||||||
| 2020 | First | Second | Third | Fourth | |||||||||||||||||||||||||
| Total revenues | $ | 439,919 | $ | 436,956 | $ | 545,042 | $ | 463,720 | |||||||||||||||||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 16,840 | $ | 226,600 | $ | 79,326 | $ | 435,923 | |||||||||||||||||||||
| Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders: | |||||||||||||||||||||||||||||
| Basic(1) | $ | 0.14 | $ | 1.82 | $ | 0.64 | $ | 3.26 | |||||||||||||||||||||
| Diluted(1) | $ | 0.14 | $ | 1.82 | $ | 0.63 | $ | 3.26 | |||||||||||||||||||||
| Quarter | |||||||||||||||||||||||||||||
| 2019 | First | Second | Third | Fourth | |||||||||||||||||||||||||
| Total revenues | $ | 358,842 | $ | 373,856 | $ | 390,484 | $ | 408,114 | |||||||||||||||||||||
| Net income (loss) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 123,598 | $ | 76,330 | $ | (49,773) | $ | 199,618 | |||||||||||||||||||||
| Net income (loss) per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders: | |||||||||||||||||||||||||||||
| Basic(1) | $ | 1.11 | $ | 0.68 | $ | (0.44) | $ | 1.75 | |||||||||||||||||||||
| Diluted(1) | $ | 1.11 | $ | 0.68 | $ | (0.44) | $ | 1.74 |
(1)Quarterly earnings per common share amounts may not total to the annual amounts due to rounding and due to the increase in the weighted-average shares of common stock outstanding.
F-51
20. SUBSEQUENT EVENTS
Real estate assets acquired in January 2021
In January 2021, we completed the acquisitions of five properties for an aggregate purchase price of $1.6 billion, comprising 2.1 million RSF of operating and active redevelopment strategically located across multiple markets. Refer to Note 3 – “Investments in real estate” to our consolidated financial statements for additional information.
Forward equity sales agreements in January 2021
In January 2021, we entered into forward equity sales agreements aggregating $1.1 billion to sell an aggregate of 6.9 million shares of our common stock (including the exercise of underwriters’ option) at a public offering price of $164.00 per share, before underwriting discounts and commissions.
F-52
SCHEDULE III
Alexandria Real Estate Equities, Inc. and Subsidiaries
Schedule III
Consolidated Financial Statement Schedule of Real Estate and Accumulated Depreciation
December 31, 2020
(Dollars in thousands)
| Initial Costs | Costs Capitalized Subsequent to Acquisitions | Total Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property | Market | Encumbrances | Land | Buildings & Improvements | Buildings & Improvements | Land | Buildings & Improvements | Total(1) | Accumulated Depreciation(2) | Net Cost Basis | Date of Construction(3) | Date Acquired | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® at Kendall Square | Greater Boston | $ | — | $ | 279,668 | $ | 205,491 | $ | 1,454,369 | $ | 279,668 | $ | 1,659,860 | $ | 1,939,528 | $ | (303,549) | $ | 1,635,979 | 2000 - 2017 | 2005 - 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Technology Square® | Greater Boston | — | — | 619,658 | 267,679 | — | 887,337 | 887,337 | (278,440) | 608,897 | 2001 - 2012 | 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Arsenal on the Charles | Greater Boston | — | 181,797 | 354,611 | 57,573 | 181,797 | 412,184 | 593,981 | (8,598) | 585,383 | 2000 - 2017 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® at One Kendall Square | Greater Boston | 202,571 | 349,952 | 483,816 | 353,302 | 349,952 | 837,118 | 1,187,070 | (111,731) | 1,075,339 | 1985 - 2019 | 2016 - 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 480 and 500 Arsenal Street | Greater Boston | — | 9,773 | 12,773 | 91,521 | 9,773 | 104,294 | 114,067 | (43,922) | 70,145 | 2001 - 2003 | 2000 - 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 640 Memorial Drive | Greater Boston | — | — | 174,878 | 967 | — | 175,845 | 175,845 | (44,074) | 131,771 | 2011 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 780 and 790 Memorial Drive | Greater Boston | — | — | — | 54,916 | — | 54,916 | 54,916 | (25,952) | 28,964 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 167 Sidney Street and 99 Erie Street | Greater Boston | — | — | 12,613 | 13,881 | — | 26,494 | 26,494 | (8,070) | 18,424 | 2006 - 2012 | 2005 - 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 79/96 13th Street (Charlestown Navy Yard) | Greater Boston | — | — | 6,247 | 8,708 | — | 14,955 | 14,955 | (6,239) | 8,716 | 2012 | 1998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 380 and 420 E Street | Greater Boston | — | 156,355 | 9,229 | 2,237 | 156,355 | 11,466 | 167,821 | (222) | 167,599 | 2013 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 Necco Street | Greater Boston | — | 41,958 | 41,546 | 2,227 | 41,958 | 43,773 | 85,731 | (1,299) | 84,432 | 2019 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10 Necco Street | Greater Boston | — | 67,743 | 13,357 | 9,932 | 67,743 | 23,289 | 91,032 | (598) | 90,434 | N/A | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 15 Necco Street | Greater Boston | — | 167,853 | 993 | 15,610 | 167,853 | 16,603 | 184,456 | (1) | 184,455 | N/A | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 99 A Street | Greater Boston | — | 31,671 | 878 | 13,041 | 31,671 | 13,919 | 45,590 | (939) | 44,651 | 1968 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reservoir Woods | Greater Boston | — | 88,840 | 214,038 | 2,513 | 88,840 | 216,551 | 305,391 | (1,820) | 303,571 | 2009 - 2010 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 275 Grove Street | Greater Boston | — | 70,476 | 150,159 | 1,043 | 70,476 | 151,202 | 221,678 | (3,702) | 217,976 | 2000 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| One Upland Road and 100 Tech Drive | Greater Boston | — | 34,353 | 206,477 | 792 | 34,353 | 207,269 | 241,622 | (8,552) | 233,070 | 2007 - 2015 | 2018 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Park at 128 | Greater Boston | — | 10,439 | 41,596 | 80,494 | 10,439 | 122,090 | 132,529 | (48,078) | 84,451 | 1997 - 2010 | 1998 - 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 225, 266, and 275 Second Avenue | Greater Boston | — | 17,086 | 69,994 | 62,250 | 17,086 | 132,244 | 149,330 | (26,687) | 122,643 | 2014 - 2018 | 2014 - 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 19 Presidential Way | Greater Boston | — | 12,833 | 27,333 | 24,983 | 12,833 | 52,316 | 65,149 | (20,356) | 44,793 | 1999 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 100 Beaver Street | Greater Boston | — | 1,466 | 9,046 | 26,102 | 1,466 | 35,148 | 36,614 | (8,478) | 28,136 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 285 Bear Hill Road | Greater Boston | — | 422 | 3,538 | 6,910 | 422 | 10,448 | 10,870 | (2,671) | 8,199 | 2013 | 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 111 and 130 Forbes Boulevard | Greater Boston | — | 3,146 | 15,725 | 4,268 | 3,146 | 19,993 | 23,139 | (6,777) | 16,362 | 2006 | 2006 - 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 20 Walkup Drive | Greater Boston | — | 2,261 | 7,099 | 9,029 | 2,261 | 16,128 | 18,389 | (4,271) | 14,118 | 2012 | 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® for Science and Technology – Mission Bay | San Francisco | — | 211,450 | 210,211 | 466,874 | 211,450 | 677,085 | 888,535 | (164,476) | 724,059 | 2007 - 2014 | 2004 - 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 260 Townsend Street | San Francisco | 27,651 | 26,392 | 33,921 | (12,883) | 26,392 | 21,038 | 47,430 | (1,585) | 45,845 | 2017 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 88 Bluxome Street | San Francisco | — | 148,551 | 21,514 | 129,960 | 148,551 | 151,474 | 300,025 | (23,098) | 276,927 | N/A | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Technology Center® – Gateway | San Francisco | — | 193,004 | 364,078 | 180,021 | 193,004 | 544,099 | 737,103 | (82,363) | 654,740 | 1984 - 2019 | 2002 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 213, 249, 259, 269, and 279 East Grand Avenue | San Francisco | — | 59,199 | — | 544,282 | 59,199 | 544,282 | 603,481 | (68,787) | 534,694 | 2008 - 2019 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 201 Haskins Way | San Francisco | — | 32,245 | 1,287 | 222,460 | 32,245 | 223,747 | 255,992 | (1,445) | 254,547 | N/A | 2017 |
F-53
SCHEDULE III (continued)
| Initial Costs | Costs Capitalized Subsequent to Acquisitions | Total Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property | Market | Encumbrances | Land | Buildings & Improvements | Buildings & Improvements | Land | Buildings & Improvements | Total(1) | Accumulated Depreciation(2) | Net Cost Basis | Date of Construction(3) | Date Acquired | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 400 and 450 East Jamie Court | San Francisco | — | — | — | 119,875 | — | 119,875 | 119,875 | (53,671) | 66,204 | 2012 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 500 Forbes Boulevard | San Francisco | — | 35,596 | 69,091 | 17,503 | 35,596 | 86,594 | 122,190 | (29,344) | 92,846 | 2001 | 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7000 Shoreline Court | San Francisco | — | 7,038 | 39,704 | 27,196 | 7,038 | 66,900 | 73,938 | (21,413) | 52,525 | 2001 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 341 and 343 Oyster Point Boulevard | San Francisco | — | 7,038 | — | 43,966 | 7,038 | 43,966 | 51,004 | (19,488) | 31,516 | 2009 - 2013 | 2000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 849/863 Mitten Road/866 Malcolm Road | San Francisco | — | 3,211 | 8,665 | 27,482 | 3,211 | 36,147 | 39,358 | (14,485) | 24,873 | 2012 | 1998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® for Life Science – San Carlos | San Francisco | — | 291,516 | 5,689 | 430,199 | 291,516 | 435,888 | 727,404 | (6,034) | 721,370 | 1974 - 2020 | 2017 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3825 and 3875 Fabian Way | San Francisco | — | 194,424 | 54,519 | 2,293 | 194,424 | 56,812 | 251,236 | (2,986) | 248,250 | 1969 - 2014 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Stanford Life Science District | San Francisco | — | — | 260,931 | 38,072 | — | 299,003 | 299,003 | (15,691) | 283,312 | 1998 - 2019 | 2003 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria PARC | San Francisco | — | 72,859 | 53,309 | 22,970 | 72,859 | 76,279 | 149,138 | (6,274) | 142,864 | 1984 - 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3330, 3412, 3450, and 3460 Hillview Avenue | San Francisco | — | — | 161,717 | 3,366 | — | 165,083 | 165,083 | (2,859) | 162,224 | 1978 - 2018 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2425 Garcia Avenue/2400/2450 Bayshore Parkway | San Francisco | 703 | 1,512 | 21,323 | 26,261 | 1,512 | 47,584 | 49,096 | (23,940) | 25,156 | 2008 | 1999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shoreway Science Center | San Francisco | — | 20,049 | 48,554 | 183 | 20,049 | 48,737 | 68,786 | (2,527) | 66,259 | 2016 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1450 Page Mill Road | San Francisco | — | — | 84,467 | 105 | — | 84,572 | 84,572 | (7,749) | 76,823 | 2017 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3350 West Bayshore Road | San Francisco | — | 4,800 | 6,693 | 32,398 | 4,800 | 39,091 | 43,891 | (6,587) | 37,304 | 1982 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2625/2627/2631 Hanover Street | San Francisco | — | — | 6,628 | 11,941 | — | 18,569 | 18,569 | (11,027) | 7,542 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® for Life Science | New York City | — | — | — | 869,765 | — | 869,765 | 869,765 | (199,418) | 670,347 | 2010 - 2016 | 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 219 East 42nd Street | New York City | — | 141,266 | 63,312 | 3,449 | 141,266 | 66,761 | 208,027 | (22,633) | 185,394 | 1995 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 47-50 30th Street | New York City | — | 22,746 | 53,093 | 83,773 | 22,746 | 136,866 | 159,612 | (1,080) | 158,532 | 1926 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® – Long Island City | New York City | — | 25,000 | — | 4,350 | 25,000 | 4,350 | 29,350 | — | 29,350 | 1942 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ARE Spectrum | San Diego | — | 32,361 | 80,957 | 231,597 | 32,361 | 312,554 | 344,915 | (64,571) | 280,344 | 2008 - 2017 | 2007 - 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ARE Torrey Ridge | San Diego | — | 22,124 | 152,840 | 58,297 | 22,124 | 211,137 | 233,261 | (45,047) | 188,214 | 2003 - 2004 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ARE Sunrise | San Diego | — | 5,408 | 17,947 | 77,646 | 5,408 | 95,593 | 101,001 | (58,692) | 42,309 | 2000 - 2015 | 1994 - 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ARE Nautilus | San Diego | — | 6,684 | 27,600 | 124,147 | 6,684 | 151,747 | 158,431 | (52,941) | 105,490 | 2009 - 2012 | 1994 - 1997 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11119, 11255, and 11355 North Torrey Pines Road | San Diego | — | 113,931 | 38,453 | 37,105 | 113,931 | 75,558 | 189,489 | (22,971) | 166,518 | 1980 - 2012 | 2007 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3545 Cray Court | San Diego | — | 7,056 | 53,944 | 44,298 | 7,056 | 98,242 | 105,298 | (40,636) | 64,662 | 1998 | 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Point | San Diego | — | 88,016 | 393,713 | 460,807 | 88,016 | 854,520 | 942,536 | (133,773) | 808,763 | 1988 - 2019 | 2010 - 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5200 Illumina Way | San Diego | — | 38,340 | 96,606 | 195,693 | 38,340 | 292,299 | 330,639 | (57,220) | 273,419 | 2004 - 2017 | 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| University District | San Diego | — | 61,753 | 49,692 | 208,922 | 61,753 | 258,614 | 320,367 | (93,805) | 226,562 | 1989 - 2018 | 1998 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SD Tech by Alexandria | San Diego | — | 81,428 | 254,069 | 58,893 | 81,428 | 312,962 | 394,390 | (10,487) | 383,903 | 1988 - 2015 | 2013 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6420 and 6450 Sequence Drive | San Diego | — | 79,145 | 87,550 | 914 | 79,145 | 88,464 | 167,609 | (335) | 167,274 | 1998 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summers Ridge Science Park | San Diego | — | 21,154 | 102,046 | 3,572 | 21,154 | 105,618 | 126,772 | (8,142) | 118,630 | 2005 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ARE Portola | San Diego | — | 6,991 | 25,153 | 39,960 | 6,991 | 65,113 | 72,104 | (15,388) | 56,716 | 2005 - 2012 | 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5810/5820 Nancy Ridge Drive | San Diego | — | 3,492 | 18,285 | 12,976 | 3,492 | 31,261 | 34,753 | (11,316) | 23,437 | 2000 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7330 Carroll Road | San Diego | — | 2,650 | 19,878 | 1,931 | 2,650 | 21,809 | 24,459 | (7,896) | 16,563 | 2007 | 2010 |
F-54
SCHEDULE III (continued)
| Initial Costs | Costs Capitalized Subsequent to Acquisitions | Total Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property | Market | Encumbrances | Land | Buildings & Improvements | Buildings & Improvements | Land | Buildings & Improvements | Total(1) | Accumulated Depreciation(2) | Net Cost Basis | Date of Construction(3) | Date Acquired | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9877 Waples Street | San Diego | — | 5,092 | 11,908 | 10,403 | 5,092 | 22,311 | 27,403 | — | 27,403 | 2020 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5871 Oberlin Drive | San Diego | — | 1,349 | 8,016 | 18,242 | 1,349 | 26,258 | 27,607 | (2,242) | 25,365 | 2004 | 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3911, 3931, 3985, 4025, 4031, 4045, and 4075 Sorrento Valley Boulevard | San Diego | — | 18,177 | 42,723 | 24,997 | 18,177 | 67,720 | 85,897 | (28,914) | 56,983 | 2007 - 2015 | 2010 - 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11025, 11035, 11045, 11055, 11065, and 11075 Roselle Street | San Diego | — | 4,156 | 11,571 | 45,388 | 4,156 | 56,959 | 61,115 | (15,222) | 45,893 | 2006 - 2014 | 1997 - 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 13112 Evening Creek Drive | San Diego | — | 7,393 | 27,950 | 232 | 7,393 | 28,182 | 35,575 | (14,889) | 20,686 | 2007 | 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Townsgate by Alexandria | San Diego | — | 16,416 | — | 6,008 | 16,416 | 6,008 | 22,424 | — | 22,424 | N/A | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Eastlake Life Science Campus by Alexandria | Seattle | — | 51,750 | 83,012 | 598,297 | 51,750 | 681,309 | 733,059 | (149,713) | 583,346 | 1997 - 2019 | 2002 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 400 Dexter Avenue North | Seattle | — | 11,342 | — | 224,090 | 11,342 | 224,090 | 235,432 | (31,427) | 204,005 | 2017 | 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2301 5th Avenue | Seattle | — | 6,543 | 76,180 | 1,634 | 6,543 | 77,814 | 84,357 | (5,212) | 79,145 | 2002 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 219 Terry Avenue North | Seattle | — | 1,819 | 2,302 | 19,975 | 1,819 | 22,277 | 24,096 | (8,104) | 15,992 | 2012 | 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 601 Dexter Avenue North | Seattle | — | 29,412 | 408 | 5,950 | 29,412 | 6,358 | 35,770 | — | 35,770 | 1985 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 701 Dexter Avenue North | Seattle | — | 35,316 | 719 | 17,576 | 35,316 | 18,295 | 53,611 | (727) | 52,884 | 1984 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 830 4th Avenue South | Seattle | — | 6,500 | 12,062 | 768 | 6,500 | 12,830 | 19,330 | (133) | 19,197 | 1995 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3000/3018 Western Avenue | Seattle | — | 1,432 | 7,497 | 24,294 | 1,432 | 31,791 | 33,223 | (19,282) | 13,941 | 2000 | 1998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 410 West Harrison/410 Elliott Avenue West | Seattle | — | 3,857 | 1,989 | 12,723 | 3,857 | 14,712 | 18,569 | (5,913) | 12,656 | 2006 - 2008 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1010 4th Avenue South | Seattle | — | 46,200 | — | 3,078 | 46,200 | 3,078 | 49,278 | — | 49,278 | N/A | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9800, 9804, 9900, 9920, and 9950 Medical Center Drive | Maryland | — | 20,219 | 112,543 | 256,636 | 20,219 | 369,179 | 389,398 | (84,469) | 304,929 | 1985 - 2018 | 2004 - 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9704, 9708, 9712, and 9714 Medical Center Drive | Maryland | — | 10,258 | 74,173 | 1,449 | 10,258 | 75,622 | 85,880 | (5,192) | 80,688 | 2015 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1330 Piccard Drive | Maryland | — | 2,800 | 11,533 | 35,783 | 2,800 | 47,316 | 50,116 | (20,507) | 29,609 | 2005 | 1997 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9605 Medical Center Drive | Maryland | — | — | 24,911 | 5,416 | — | 30,327 | 30,327 | (470) | 29,857 | 2004 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1500 and 1550 East Gude Drive | Maryland | — | 1,523 | 7,731 | 7,584 | 1,523 | 15,315 | 16,838 | (9,756) | 7,082 | 1995 - 2003 | 1997 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 14920 and 15010 Broschart Road | Maryland | — | 4,904 | 15,846 | 5,847 | 4,904 | 21,693 | 26,597 | (6,613) | 19,984 | 1998 - 1999 | 2004 - 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1405 Research Boulevard | Maryland | — | 899 | 21,946 | 14,975 | 899 | 36,921 | 37,820 | (16,303) | 21,517 | 2006 | 1997 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 Research Place | Maryland | — | 1,466 | 5,708 | 30,340 | 1,466 | 36,048 | 37,514 | (15,910) | 21,604 | 2010 | 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 Research Court | Maryland | — | 1,647 | 13,258 | 24,099 | 1,647 | 37,357 | 39,004 | (15,484) | 23,520 | 2007 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9920 Belward Campus Drive | Maryland | — | 2,732 | 12,308 | 86 | 2,732 | 12,394 | 15,126 | (847) | 14,279 | 2007 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 12301 Parklawn Drive | Maryland | — | 1,476 | 7,267 | 1,435 | 1,476 | 8,702 | 10,178 | (3,168) | 7,010 | 2007 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 14200 Shady Grove Road | Maryland | — | 25,000 | — | 3,668 | 25,000 | 3,668 | 28,668 | — | 28,668 | N/A | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Technology Center® – Gaithersburg I | Maryland | — | 20,980 | 121,952 | 47,454 | 20,980 | 169,406 | 190,386 | (41,239) | 149,147 | 1992 - 2019 | 1997 - 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Technology Center® – Gaithersburg II | Maryland | — | 13,942 | 64,573 | 42,823 | 13,942 | 107,396 | 121,338 | (30,683) | 90,655 | 2000 - 2020 | 1997 - 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 401 Professional Drive | Maryland | — | 1,129 | 6,941 | 10,477 | 1,129 | 17,418 | 18,547 | (7,792) | 10,755 | 2007 | 1996 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 950 Wind River Lane | Maryland | — | 2,400 | 10,620 | 1,050 | 2,400 | 11,670 | 14,070 | (3,633) | 10,437 | 2009 | 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 620 Professional Drive | Maryland | — | 784 | 4,705 | 7,353 | 784 | 12,058 | 12,842 | (6,324) | 6,518 | 2012 | 2005 |
F-55
SCHEDULE III (continued)
| Initial Costs | Costs Capitalized Subsequent to Acquisitions | Total Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property | Market | Encumbrances | Land | Buildings & Improvements | Buildings & Improvements | Land | Buildings & Improvements | Total(1) | Accumulated Depreciation(2) | Net Cost Basis | Date of Construction(3) | Date Acquired | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8000/9000/10000 Virginia Manor Road | Maryland | — | — | 13,679 | 9,301 | — | 22,980 | 22,980 | (10,953) | 12,027 | 2003 | 1998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 14225 Newbrook Drive | Maryland | — | 4,800 | 27,639 | 21,233 | 4,800 | 48,872 | 53,672 | (18,339) | 35,333 | 2006 | 1997 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® for Life Science – Durham | Research Triangle | — | 48,652 | 471,263 | 27,030 | 48,652 | 498,293 | 546,945 | (2,953) | 543,992 | 1985 - 2013 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® for AgTech | Research Triangle | — | 2,801 | 6,756 | 140,316 | 2,801 | 147,072 | 149,873 | (5,304) | 144,569 | 2018 | 2017 - 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Center® for Advanced Technologies | Research Triangle | — | 9,029 | 10,712 | 51,436 | 9,029 | 62,148 | 71,177 | (13,540) | 57,637 | 2012 | 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Technology Center® – Alston | Research Triangle | — | 1,430 | 17,482 | 31,646 | 1,430 | 49,128 | 50,558 | (24,867) | 25,691 | 1985 - 2009 | 1998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 108/110/112/114 TW Alexander Drive | Research Triangle | — | — | 376 | 43,348 | — | 43,724 | 43,724 | (21,263) | 22,461 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alexandria Innovation Center® – Research Triangle | Research Triangle | — | 1,065 | 21,218 | 30,362 | 1,065 | 51,580 | 52,645 | (20,653) | 31,992 | 2005 - 2008 | 2000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7 Triangle Drive | Research Triangle | — | 701 | — | 32,516 | 701 | 32,516 | 33,217 | (8,183) | 25,034 | 2011 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2525 East NC Highway 54 | Research Triangle | — | 713 | 12,827 | 20,700 | 713 | 33,527 | 34,240 | (11,380) | 22,860 | 1995 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 407 Davis Drive | Research Triangle | — | 1,229 | 17,733 | 1,028 | 1,229 | 18,761 | 19,990 | (4,028) | 15,962 | 1998 | 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 601 Keystone Park Drive | Research Triangle | — | 785 | 11,546 | 7,112 | 785 | 18,658 | 19,443 | (6,653) | 12,790 | 2009 | 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6040 George Watts Hill Drive | Research Triangle | — | — | — | 26,344 | — | 26,344 | 26,344 | (3,926) | 22,418 | 2015 | 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 Triangle Drive | Research Triangle | — | 161 | 3,409 | 12,578 | 161 | 15,987 | 16,148 | (5,947) | 10,201 | 1981 | 1998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6101 Quadrangle Drive | Research Triangle | — | 951 | 3,982 | 11,316 | 951 | 15,298 | 16,249 | (3,709) | 12,540 | 2012 | 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | Canada | — | 10,350 | 43,884 | 18,382 | 10,350 | 62,266 | 72,616 | (27,478) | 45,138 | 2004 - 2012 | 2005 - 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Various | Various | — | 162,537 | 185,905 | 306,676 | 162,537 | 492,581 | 655,118 | (61,474) | 593,644 | Various | Various | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total – North America | 230,925 | 4,200,638 | 7,319,297 | 9,718,420 | 4,200,638 | 17,037,717 | 21,238,355 | (3,178,024) | 18,060,331 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asia | — | — | — | 36,455 | — | 36,455 | 36,455 | (4,414) | 32,041 | 2015 | 2008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 230,925 | $ | 4,200,638 | $ | 7,319,297 | $ | 9,754,875 | $ | 4,200,638 | $ | 17,074,172 | $ | 21,274,810 | $ | (3,182,438) | $ | 18,092,372 |
F-56
SCHEDULE III (continued)
Alexandria Real Estate Equities, Inc.
Consolidated Financial Statement Schedule of Rental Properties and Accumulated Depreciation
December 31, 2020
(Dollars in thousands)
(1)As of December 31, 2020, the total cost of our real estate assets aggregated $21.3 billion, which exceeded the cost of real estate for federal income tax purposes aggregating $20.4 billion by approximately $881.3 million.
(2)The depreciable life ranges up to 40 years for buildings and improvements, up to 20 years for land improvements, and the term of the respective lease for tenant improvements.
(3)Represents the later of the date of original construction or the date of the latest renovation.
F-57
SCHEDULE III (continued)
Alexandria Real Estate Equities, Inc.
Consolidated Financial Statement Schedule of Real Estate and Accumulated Depreciation
December 31, 2020
(In thousands)
A summary of activity of consolidated investments in real estate and accumulated depreciation is as follows:
| December 31, | ||||||||||||||||||||
| Real Estate | 2020 | 2019 | 2018 | |||||||||||||||||
| Balance at beginning of period | $ | 17,552,956 | $ | 14,181,780 | $ | 12,178,255 | ||||||||||||||
| Acquisitions (including real estate, land, and joint venture consolidation) | 2,825,537 | 2,240,376 | 1,057,036 | |||||||||||||||||
| Additions to real estate | 1,505,152 | 1,143,035 | 959,410 | |||||||||||||||||
| Deductions (including dispositions and direct financing leases) | (608,835) | (12,235) | (12,921) | |||||||||||||||||
| Balance at end of period | $ | 21,274,810 | $ | 17,552,956 | $ | 14,181,780 | ||||||||||||||
| December 31, | ||||||||||||||||||||
| Accumulated Depreciation | 2020 | 2019 | 2018 | |||||||||||||||||
| Balance at beginning of period | $ | 2,708,918 | $ | 2,268,087 | $ | 1,880,236 | ||||||||||||||
| Depreciation expense on properties | 530,226 | 448,661 | 390,471 | |||||||||||||||||
| Sale of properties | (56,706) | (7,830) | (2,620) | |||||||||||||||||
| Balance at end of period | $ | 3,182,438 | $ | 2,708,918 | $ | 2,268,087 |
F-58
Previous: Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES