Investments in real estate (Notes)

9 Months Ended

Sep. 30, 2013

Real Estate [Abstract]

Investments in real estate

Investments in real estate

Our investments in real estate, net, consisted of the following as of September 30, 2013, and December 31, 2012 (in thousands):

	September 30, 2013				December 31, 2012
Rental properties:
Land (related to rental properties)	$	542,511			$	522,664
Buildings and building improvements	5,315,447				4,933,314
Other improvements	170,078				189,793
Rental properties	6,028,036				5,645,771
Less: accumulated depreciation	(915,494		)		(875,035		)
Rental properties, net	5,112,542				4,770,736
Construction in progress (“CIP”)/current value-creation projects:
Active development in North America	594,973				431,578
Investment in unconsolidated joint venture	42,537			(1)	28,656
Active redevelopment in North America	24,960				199,744
Active development and redevelopment in Asia	97,319				101,602
Generic infrastructure/building improvement projects in North America	46,227				80,599
	806,016				842,179
Subtotal	5,918,558				5,612,915
Land/future value-creation projects:
Land undergoing predevelopment activities (CIP) in North America	351,062				433,310
Land held for future development in North America	190,427				296,039
Land held for future development/undergoing predevelopment activities (CIP) in Asia	77,274				82,314
Land subject to sale negotiations	76,440				—
	695,203				811,663
Investments in real estate, net	$	6,613,761			$	6,424,578

(1) The book value for this unconsolidated joint venture represents our equity investment in the project.

Investment in unconsolidated real estate entity

We have a 27.5% interest in an unconsolidated joint venture that is currently developing a building totaling 413,536 RSF in the Longwood Medical Area of the Greater Boston market. The project is 37% pre-leased to Dana-Farber Cancer Institute, Inc. Our total investment into this project is approximately$42.5 million as of September 30, 2013. The total project costs are being funded primarily from a $213.2 million non-recourse secured construction loan, of which $75.0 million was drawn and outstanding at September 30, 2013. The loan bears interest at a rate of LIBOR+3.75%, with a floor of 5.25%. This loan has a maturity date of April 1, 2019, assuming the joint venture exercises its two separate one-year options to extend the stated maturity date of April 1, 2017.

We do not qualify as the primary beneficiary of the unconsolidated joint venture since we do not have the power to direct the activities of the entity that most significantly impacts its economic performance. The decisions that most significantly impact the entity’s economic performance require both our consent and that of our partners, including all major operating, investing, and financing decisions, as well as decisions involving major expenditures. Consequently, we do not consolidate this joint venture and we account for our investment under the equity method of accounting.

Land undergoing predevelopment activities (additional CIP)

Land undergoing predevelopment activities is classified as construction in progress and is undergoing activities prior to commencement of vertical construction of above-ground building improvements.  We generally will not commence ground-up development of any parcels undergoing predevelopment activities without first securing pre-leasing for such space, except when there is significant market demand for high-quality laboratory facilities.  If vertical aboveground construction is not initiated at completion of predevelopment activities, the land parcel will be classified as land held for future development.  Our objective with predevelopment is to reduce the time it takes to deliver projects to prospective client tenants.  Additionally, during predevelopment, we focus on the design of cost effective buildings with generic laboratory and office infrastructure to accommodate single and multi-tenancy. The largest project included in land undergoing predevelopment consists of our 1.2 million developable square feet at the Alexandria Center™ at Kendall Square in East Cambridge, Massachusetts.

We are required to capitalize project costs, including interest, property taxes, insurance, and other costs directly related and essential to the development or construction of a project during periods when activities necessary to prepare an asset for its intended use are in progress.  Predevelopment costs generally include the following activities prior to commencement of vertical construction:

Ÿ Traditional preconstruction costs including entitlement, design, construction drawings, Building Information Modeling (3-D virtual modeling), budgeting, sustainability and energy optimization reviews, permitting, and planning for all aspects of the project.

Ÿ Site and infrastructure construction costs including belowground site work, utility connections, land grading, drainage, egress and regress access points, foundation, and other costs to prepare the site for vertical construction of aboveground building improvements. For example, site and infrastructure costs for the 1.2 million RSF primarily related to 50 Binney Street and 100 Binney Street of the Alexandria Center™ at Kendall Square are classified as predevelopment prior to commencement of vertical construction.

Land held for future development

Land held for future development represents real estate we plan to develop in the future, but on which, as of each period presented, no construction or predevelopment activities were ongoing. In such cases, all predevelopment efforts have been advanced to appropriate stages and no further predevelopment activities are ongoing; therefore, interest, property taxes, insurance, and other costs are expensed as incurred.

Real estate asset sales

During the nine months ended September 30, 2013, we sold seven properties for aggregate consideration of $128.6 million, including four properties sold at a total gain of $271 thousand and three properties sold at a total loss of $392 thousand. The net loss on sales is classified in (loss) income from discontinued operations before impairment of real estate in the accompanying consolidated statements of income.

During the nine months ended September 30, 2013, we sold three parcels of land for aggregate consideration of $18.1 million and recognized gains of $772 thousand, which included a gain of $381 thousand on the sale of two parcels in the San Francisco Bay Area market, and a gain of $391 thousand on the sale of one parcel in the Greater NYC market. These gains are classified in gains on sales of land parcels in the accompanying consolidated statements of income.