Leases

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

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 unaudited consolidated financial statements for additional information.

Leases in which we are the lessor

As of September 30, 2021, we had 407 properties aggregating 38.7 million operating RSF located in key locations, including Greater Boston, the San Francisco Bay Area, 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, agtech, and technology 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 September 30, 2021, all leases in which we are the lessor were classified as operating leases with the exception of one direct financing lease and two sales-type leases. Our operating, direct financing, and sales-type leases are described below.

Operating leases

As of September 30, 2021, our 407 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 71.2 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 September 30, 2021, are outlined in the table below (in thousands):

Year	Amount
2021	$	361,351
2022	1,508,991
2023	1,542,593
2024	1,481,732
2025	1,383,973
Thereafter	8,987,517
Total	$	15,266,157

Refer to Note 3 – “Investments in real estate” to our unaudited consolidated financial statements for additional information about our owned real estate assets, which are the underlying assets under our operating leases.

Direct financing and sales-type leases

As of September 30, 2021, we had one direct financing lease agreement, with a net investment balance of $38.4 million, for a parking structure with a remaining lease term of 71.2 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.

During the nine months ended September 30, 2021, we acquired two sales-type ground lease agreements. As of September 30, 2021, these leases had a net investment balance of $32.0 million and a weighted-average remaining lease term of 88.2 years. Upon recognition of the two sales-type ground leases during the nine months ended September 30, 2021, the present value of future lease payments approximated our carrying value of the leased assets; therefore, no profit or loss was recognized in connection with these leases.

The components of our aggregate net investment in our direct financing and sales-type leases as of September 30, 2021, and December 31, 2020, are summarized in the table below (in thousands):

	September 30, 2021		December 31, 2020
Gross investment in direct financing and sales-type leases	$	404,143	$	258,751
Add: estimated unguaranteed residual value of the underlying assets	31,839		—
Less: unearned income on direct financing lease	(216,190)		(218,072)
Less: effect of discounting on sales-type leases	(146,557)		—
Less: allowance for credit losses	(2,839)		(2,839)
Net investment in direct financing and sales-type leases	$	70,396	$	37,840

As of September 30, 2021, our estimated credit loss related to our direct financing lease was $2.8 million. No adjustment to the estimated credit loss balance was required during the three months ended September 30, 2021.

We determined our two sales-type leases were not financial assets purchased with credit deterioration, and as such did not recognize an initial credit loss reserve, based on our experience with leases that included similar collateral and tenant creditworthiness. At September 30, 2021, we re-assessed the collectability of these leases, and determined that no credit loss adjustment was necessary For further details, refer to the “Allowance for credit losses” section in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

Future lease payments to be received under the terms of our direct financing and sales-type leases as of September 30, 2021, are outlined in the table below, in aggregate (in thousands):

Year	Total
2021	$	755
2022	3,066
2023	3,120
2024	3,176
2025	3,371
Thereafter	390,655
Total	$	404,143

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 the revenue recognition accounting standard as shown below (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Income from rentals:
Revenues subject to the lease accounting standard:
Operating leases	$	538,880	$	539,001	$	1,515,396	$	1,398,084
Direct financing and sales-type leases	1,012		619		2,473		1,847
Revenues subject to the lease accounting standard	539,892		539,620		1,517,869		1,399,931
Revenues subject to the revenue recognition accounting standard	6,635		3,792		15,724		16,942
Income from rentals	$	546,527	$	543,412	$	1,533,593	$	1,416,873

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 unaudited consolidated financial statements for additional information.

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 unaudited consolidated financial statements.

As of September 30, 2021, the present value of the remaining contractual payments aggregating $872.8 million under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $371.5 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 $395.9 million. As of September 30, 2021, 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 4.78%. 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 September 30, 2021, included leases for 38 of our properties, which accounted for approximately 9% 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 $7.0 million as of September 30, 2021, our ground lease obligations have remaining lease terms ranging from approximately 32 years to 93 years, including extension options which we are reasonably certain to exercise.

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 unaudited consolidated balance sheet as of September 30, 2021, is presented in the table below (in thousands):

Year	Total
2021	$	5,471
2022	21,115
2023	21,288
2024	21,533
2025	20,663
Thereafter	782,688
Total future payments under our operating leases in which we are the lessee	872,758
Effect of discounting	(501,220)
Operating lease liability	$	371,538

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 three and nine months ended September 30, 2021 and 2020, our costs for operating leases in which we are the lessee were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Gross operating lease costs	$	7,055	$	5,623	$	20,580	$	17,060
Capitalized lease costs	(827)		(894)		(2,273)		(2,614)
Expenses for operating leases in which we are the lessee	$	6,228	$	4,729	$	18,307	$	14,446

For the nine months ended September 30, 2021 and 2020, amounts paid and classified as operating activities in our unaudited consolidated statements of cash flows for leases in which we are the lessee were $18.0 million and $15.2 million, respectively.

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 unaudited consolidated financial statements for additional information.

Leases in which we are the lessor

As of September 30, 2021, we had 407 properties aggregating 38.7 million operating RSF located in key locations, including Greater Boston, the San Francisco Bay Area, 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, agtech, and technology 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 September 30, 2021, all leases in which we are the lessor were classified as operating leases with the exception of one direct financing lease and two sales-type leases. Our operating, direct financing, and sales-type leases are described below.

Operating leases

As of September 30, 2021, our 407 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 71.2 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 September 30, 2021, are outlined in the table below (in thousands):

Year	Amount
2021	$	361,351
2022	1,508,991
2023	1,542,593
2024	1,481,732
2025	1,383,973
Thereafter	8,987,517
Total	$	15,266,157

Refer to Note 3 – “Investments in real estate” to our unaudited consolidated financial statements for additional information about our owned real estate assets, which are the underlying assets under our operating leases.

Direct financing and sales-type leases

As of September 30, 2021, we had one direct financing lease agreement, with a net investment balance of $38.4 million, for a parking structure with a remaining lease term of 71.2 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.

During the nine months ended September 30, 2021, we acquired two sales-type ground lease agreements. As of September 30, 2021, these leases had a net investment balance of $32.0 million and a weighted-average remaining lease term of 88.2 years. Upon recognition of the two sales-type ground leases during the nine months ended September 30, 2021, the present value of future lease payments approximated our carrying value of the leased assets; therefore, no profit or loss was recognized in connection with these leases.

The components of our aggregate net investment in our direct financing and sales-type leases as of September 30, 2021, and December 31, 2020, are summarized in the table below (in thousands):

	September 30, 2021		December 31, 2020
Gross investment in direct financing and sales-type leases	$	404,143	$	258,751
Add: estimated unguaranteed residual value of the underlying assets	31,839		—
Less: unearned income on direct financing lease	(216,190)		(218,072)
Less: effect of discounting on sales-type leases	(146,557)		—
Less: allowance for credit losses	(2,839)		(2,839)
Net investment in direct financing and sales-type leases	$	70,396	$	37,840

As of September 30, 2021, our estimated credit loss related to our direct financing lease was $2.8 million. No adjustment to the estimated credit loss balance was required during the three months ended September 30, 2021.

We determined our two sales-type leases were not financial assets purchased with credit deterioration, and as such did not recognize an initial credit loss reserve, based on our experience with leases that included similar collateral and tenant creditworthiness. At September 30, 2021, we re-assessed the collectability of these leases, and determined that no credit loss adjustment was necessary For further details, refer to the “Allowance for credit losses” section in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

Future lease payments to be received under the terms of our direct financing and sales-type leases as of September 30, 2021, are outlined in the table below, in aggregate (in thousands):

Year	Total
2021	$	755
2022	3,066
2023	3,120
2024	3,176
2025	3,371
Thereafter	390,655
Total	$	404,143

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 the revenue recognition accounting standard as shown below (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Income from rentals:
Revenues subject to the lease accounting standard:
Operating leases	$	538,880	$	539,001	$	1,515,396	$	1,398,084
Direct financing and sales-type leases	1,012		619		2,473		1,847
Revenues subject to the lease accounting standard	539,892		539,620		1,517,869		1,399,931
Revenues subject to the revenue recognition accounting standard	6,635		3,792		15,724		16,942
Income from rentals	$	546,527	$	543,412	$	1,533,593	$	1,416,873

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 unaudited consolidated financial statements for additional information.

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 unaudited consolidated financial statements.

As of September 30, 2021, the present value of the remaining contractual payments aggregating $872.8 million under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $371.5 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 $395.9 million. As of September 30, 2021, 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 4.78%. 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 September 30, 2021, included leases for 38 of our properties, which accounted for approximately 9% 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 $7.0 million as of September 30, 2021, our ground lease obligations have remaining lease terms ranging from approximately 32 years to 93 years, including extension options which we are reasonably certain to exercise.

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 unaudited consolidated balance sheet as of September 30, 2021, is presented in the table below (in thousands):

Year	Total
2021	$	5,471
2022	21,115
2023	21,288
2024	21,533
2025	20,663
Thereafter	782,688
Total future payments under our operating leases in which we are the lessee	872,758
Effect of discounting	(501,220)
Operating lease liability	$	371,538

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 three and nine months ended September 30, 2021 and 2020, our costs for operating leases in which we are the lessee were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Gross operating lease costs	$	7,055	$	5,623	$	20,580	$	17,060
Capitalized lease costs	(827)		(894)		(2,273)		(2,614)
Expenses for operating leases in which we are the lessee	$	6,228	$	4,729	$	18,307	$	14,446

For the nine months ended September 30, 2021 and 2020, amounts paid and classified as operating activities in our unaudited consolidated statements of cash flows for leases in which we are the lessee were $18.0 million and $15.2 million, respectively.

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 unaudited consolidated financial statements for additional information.

Leases in which we are the lessor

As of September 30, 2021, we had 407 properties aggregating 38.7 million operating RSF located in key locations, including Greater Boston, the San Francisco Bay Area, 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, agtech, and technology 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 September 30, 2021, all leases in which we are the lessor were classified as operating leases with the exception of one direct financing lease and two sales-type leases. Our operating, direct financing, and sales-type leases are described below.

Operating leases

As of September 30, 2021, our 407 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 71.2 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 September 30, 2021, are outlined in the table below (in thousands):

Year	Amount
2021	$	361,351
2022	1,508,991
2023	1,542,593
2024	1,481,732
2025	1,383,973
Thereafter	8,987,517
Total	$	15,266,157

Refer to Note 3 – “Investments in real estate” to our unaudited consolidated financial statements for additional information about our owned real estate assets, which are the underlying assets under our operating leases.

Direct financing and sales-type leases

As of September 30, 2021, we had one direct financing lease agreement, with a net investment balance of $38.4 million, for a parking structure with a remaining lease term of 71.2 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.

During the nine months ended September 30, 2021, we acquired two sales-type ground lease agreements. As of September 30, 2021, these leases had a net investment balance of $32.0 million and a weighted-average remaining lease term of 88.2 years. Upon recognition of the two sales-type ground leases during the nine months ended September 30, 2021, the present value of future lease payments approximated our carrying value of the leased assets; therefore, no profit or loss was recognized in connection with these leases.

The components of our aggregate net investment in our direct financing and sales-type leases as of September 30, 2021, and December 31, 2020, are summarized in the table below (in thousands):

	September 30, 2021		December 31, 2020
Gross investment in direct financing and sales-type leases	$	404,143	$	258,751
Add: estimated unguaranteed residual value of the underlying assets	31,839		—
Less: unearned income on direct financing lease	(216,190)		(218,072)
Less: effect of discounting on sales-type leases	(146,557)		—
Less: allowance for credit losses	(2,839)		(2,839)
Net investment in direct financing and sales-type leases	$	70,396	$	37,840

As of September 30, 2021, our estimated credit loss related to our direct financing lease was $2.8 million. No adjustment to the estimated credit loss balance was required during the three months ended September 30, 2021.

We determined our two sales-type leases were not financial assets purchased with credit deterioration, and as such did not recognize an initial credit loss reserve, based on our experience with leases that included similar collateral and tenant creditworthiness. At September 30, 2021, we re-assessed the collectability of these leases, and determined that no credit loss adjustment was necessary For further details, refer to the “Allowance for credit losses” section in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

Future lease payments to be received under the terms of our direct financing and sales-type leases as of September 30, 2021, are outlined in the table below, in aggregate (in thousands):

Year	Total
2021	$	755
2022	3,066
2023	3,120
2024	3,176
2025	3,371
Thereafter	390,655
Total	$	404,143

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 the revenue recognition accounting standard as shown below (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Income from rentals:
Revenues subject to the lease accounting standard:
Operating leases	$	538,880	$	539,001	$	1,515,396	$	1,398,084
Direct financing and sales-type leases	1,012		619		2,473		1,847
Revenues subject to the lease accounting standard	539,892		539,620		1,517,869		1,399,931
Revenues subject to the revenue recognition accounting standard	6,635		3,792		15,724		16,942
Income from rentals	$	546,527	$	543,412	$	1,533,593	$	1,416,873

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 unaudited consolidated financial statements for additional information.

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 unaudited consolidated financial statements.

As of September 30, 2021, the present value of the remaining contractual payments aggregating $872.8 million under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $371.5 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 $395.9 million. As of September 30, 2021, 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 4.78%. 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 September 30, 2021, included leases for 38 of our properties, which accounted for approximately 9% 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 $7.0 million as of September 30, 2021, our ground lease obligations have remaining lease terms ranging from approximately 32 years to 93 years, including extension options which we are reasonably certain to exercise.

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 unaudited consolidated balance sheet as of September 30, 2021, is presented in the table below (in thousands):

Year	Total
2021	$	5,471
2022	21,115
2023	21,288
2024	21,533
2025	20,663
Thereafter	782,688
Total future payments under our operating leases in which we are the lessee	872,758
Effect of discounting	(501,220)
Operating lease liability	$	371,538

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 three and nine months ended September 30, 2021 and 2020, our costs for operating leases in which we are the lessee were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Gross operating lease costs	$	7,055	$	5,623	$	20,580	$	17,060
Capitalized lease costs	(827)		(894)		(2,273)		(2,614)
Expenses for operating leases in which we are the lessee	$	6,228	$	4,729	$	18,307	$	14,446

For the nine months ended September 30, 2021 and 2020, amounts paid and classified as operating activities in our unaudited consolidated statements of cash flows for leases in which we are the lessee were $18.0 million and $15.2 million, respectively.

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 unaudited consolidated financial statements for additional information.

Leases in which we are the lessor

As of September 30, 2021, we had 407 properties aggregating 38.7 million operating RSF located in key locations, including Greater Boston, the San Francisco Bay Area, 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, agtech, and technology 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 September 30, 2021, all leases in which we are the lessor were classified as operating leases with the exception of one direct financing lease and two sales-type leases. Our operating, direct financing, and sales-type leases are described below.

Operating leases

As of September 30, 2021, our 407 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 71.2 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 September 30, 2021, are outlined in the table below (in thousands):

Year	Amount
2021	$	361,351
2022	1,508,991
2023	1,542,593
2024	1,481,732
2025	1,383,973
Thereafter	8,987,517
Total	$	15,266,157

Refer to Note 3 – “Investments in real estate” to our unaudited consolidated financial statements for additional information about our owned real estate assets, which are the underlying assets under our operating leases.

Direct financing and sales-type leases

As of September 30, 2021, we had one direct financing lease agreement, with a net investment balance of $38.4 million, for a parking structure with a remaining lease term of 71.2 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.

During the nine months ended September 30, 2021, we acquired two sales-type ground lease agreements. As of September 30, 2021, these leases had a net investment balance of $32.0 million and a weighted-average remaining lease term of 88.2 years. Upon recognition of the two sales-type ground leases during the nine months ended September 30, 2021, the present value of future lease payments approximated our carrying value of the leased assets; therefore, no profit or loss was recognized in connection with these leases.

The components of our aggregate net investment in our direct financing and sales-type leases as of September 30, 2021, and December 31, 2020, are summarized in the table below (in thousands):

	September 30, 2021		December 31, 2020
Gross investment in direct financing and sales-type leases	$	404,143	$	258,751
Add: estimated unguaranteed residual value of the underlying assets	31,839		—
Less: unearned income on direct financing lease	(216,190)		(218,072)
Less: effect of discounting on sales-type leases	(146,557)		—
Less: allowance for credit losses	(2,839)		(2,839)
Net investment in direct financing and sales-type leases	$	70,396	$	37,840

As of September 30, 2021, our estimated credit loss related to our direct financing lease was $2.8 million. No adjustment to the estimated credit loss balance was required during the three months ended September 30, 2021.

We determined our two sales-type leases were not financial assets purchased with credit deterioration, and as such did not recognize an initial credit loss reserve, based on our experience with leases that included similar collateral and tenant creditworthiness. At September 30, 2021, we re-assessed the collectability of these leases, and determined that no credit loss adjustment was necessary For further details, refer to the “Allowance for credit losses” section in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

Future lease payments to be received under the terms of our direct financing and sales-type leases as of September 30, 2021, are outlined in the table below, in aggregate (in thousands):

Year	Total
2021	$	755
2022	3,066
2023	3,120
2024	3,176
2025	3,371
Thereafter	390,655
Total	$	404,143

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 the revenue recognition accounting standard as shown below (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Income from rentals:
Revenues subject to the lease accounting standard:
Operating leases	$	538,880	$	539,001	$	1,515,396	$	1,398,084
Direct financing and sales-type leases	1,012		619		2,473		1,847
Revenues subject to the lease accounting standard	539,892		539,620		1,517,869		1,399,931
Revenues subject to the revenue recognition accounting standard	6,635		3,792		15,724		16,942
Income from rentals	$	546,527	$	543,412	$	1,533,593	$	1,416,873

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 unaudited consolidated financial statements for additional information.

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 unaudited consolidated financial statements.

As of September 30, 2021, the present value of the remaining contractual payments aggregating $872.8 million under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $371.5 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 $395.9 million. As of September 30, 2021, 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 4.78%. 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 September 30, 2021, included leases for 38 of our properties, which accounted for approximately 9% 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 $7.0 million as of September 30, 2021, our ground lease obligations have remaining lease terms ranging from approximately 32 years to 93 years, including extension options which we are reasonably certain to exercise.

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 unaudited consolidated balance sheet as of September 30, 2021, is presented in the table below (in thousands):

Year	Total
2021	$	5,471
2022	21,115
2023	21,288
2024	21,533
2025	20,663
Thereafter	782,688
Total future payments under our operating leases in which we are the lessee	872,758
Effect of discounting	(501,220)
Operating lease liability	$	371,538

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 three and nine months ended September 30, 2021 and 2020, our costs for operating leases in which we are the lessee were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Gross operating lease costs	$	7,055	$	5,623	$	20,580	$	17,060
Capitalized lease costs	(827)		(894)		(2,273)		(2,614)
Expenses for operating leases in which we are the lessee	$	6,228	$	4,729	$	18,307	$	14,446

For the nine months ended September 30, 2021 and 2020, amounts paid and classified as operating activities in our unaudited consolidated statements of cash flows for leases in which we are the lessee were $18.0 million and $15.2 million, respectively.