UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 1-12993

ALEXANDRIA REAL ESTATE EQUITIES, INC.

(Exact name of registrant as specified in its charter)

385 East Colorado Boulevard, Suite 299, Pasadena, California 91101

(Address of principal executive offices)(Zip Code)

(626) 578-0777

(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

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

As of November 5, 2007, 31,877,932 shares of common stock, par value $.01 per share, were outstanding.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.                             FINANCIAL STATEMENTS (UNAUDITED)

3

Alexandria Real Estate Equities, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

See the accompanying Notes to Condensed Consolidated Financial Statements

4

Alexandria Real Estate Equities, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

See the accompanying Notes to Condensed Consolidated Financial Statements

5

Alexandria Real Estate Equities, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)
(In thousands)

See the accompanying Notes to Condensed Consolidated Financial Statements

6

Alexandria Real Estate Equities, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.              Background

As used in this Quarterly Report on Form 10-Q, references to the “Company”, “we”, “our” and “us” refer to Alexandria Real Estate Equities, Inc. and its subsidiaries.

Alexandria Real Estate Equities, Inc., Landlord and Developer of Choice to the Life Science Industry®, is a real estate investment trust (“REIT”) formed in 1994. We are engaged principally in the ownership, operation, management, selective development, redevelopment and acquisition of life science properties. Our properties are designed and improved for lease primarily to institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, life science product, service, biodefense and translational medicine entities, as well as governmental agencies. As of September 30, 2007, we had 167 properties (163 properties located in nine life science markets in the United States and four properties located in Canada) compared to 150 properties (147 properties in eight life science markets in the United States and three properties located in Canada) as of September 30, 2006.

2.              Basis of Presentation

We have prepared the accompanying interim financial statements in accordance with accounting principles generally accepted in the United States and in conformity with the rules and regulations of the Securities and Exchange Commission. In our opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. These financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.

The accompanying condensed consolidated financial statements include the accounts of Alexandria Real Estate Equities, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

We hold interests, together with certain third parties, in joint ventures which we consolidate in our financial statements. Such interests are subject to provisions of FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities”, FASB Emerging Issues Task Force Issue No. 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights”, FASB Emerging Issues Task Force Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” and AICPA Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures”. Based on the provisions set forth in these rules, we consolidate the joint ventures because we exercise significant control over major decisions by these entities, such as investment activity and changes in financing.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

International Operations

The functional currency for our subsidiaries operating in the United States is the U.S. dollar. We own four operating properties and one land parcel in Canada; we also have the right to use one land parcel in China. The functional currency for our foreign subsidiaries operating in Canada and China is the local currency. 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. Income statement accounts of our foreign subsidiaries are translated using the average exchange rate for the period presented. Gains resulting from the translation are included in accumulated other comprehensive income as a separate component of stockholders’ equity.

7

2.              Background and Basis of Presentation (continued)

International Operations (continued)

The appropriate amounts of exchange gains or losses included in accumulated other comprehensive income are reflected in income when there is a sale or partial sale of our investment in these operations or upon a complete or substantially complete liquidation of the investment.

Rental Properties, Properties Under Development and Land Held For Development

In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”), we allocate the purchase price of acquired properties to land, land improvements, buildings, building improvements, tenant improvements, equipment and identified intangibles (including intangible value to above, below and at-market leases, origination costs associated with in-place leases, tenant relationships and other intangible assets) based upon their relative fair values. The value of tangible assets acquired is based upon our estimation of value on an “as if vacant” basis. We assess fair value of tangible and intangible assets based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and market/economic conditions that may affect the property.

The purchase price of some of our acquisitions completed in 2007 has been allocated on a preliminary basis to the respective assets acquired and the liabilities assumed. We expect to finalize our purchase price accounting no later than twelve months from the date of acquisition.

Conditional Asset Retirement Obligations

Some of our properties may have asbestos which, under certain conditions, require remediation. Although we believe that the asbestos is appropriately contained in accordance with environmental regulations, our practice is to remediate the asbestos upon the development or redevelopment of the affected property. In accordance with Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143” (“FIN No. 47”), we recognize a liability for the fair value of a conditional asset retirement obligation (including asbestos) when the fair value of the liability can be reasonably estimated. In addition, for certain properties, we have not recognized an asset retirement obligation when there is an indeterminate settlement date for the obligation because the period in which we may remediate the obligation may not be estimated with any level of precision to provide for a meaningful estimate of the retirement obligation.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of the following (in thousands):

The following table provides a reconciliation of comprehensive income (in thousands):

8

2.              Background and Basis of Presentation (continued)

Income Taxes

We are organized and qualify as a Real Estate Investment Trust (“REIT”) pursuant to the Internal Revenue Code of 1986, as amended (the “Code”). Under the Code, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions is not subject to federal income taxes, but is subject to certain state and local taxes. We generally distribute 100% or more of our taxable income. Therefore, no provision for Federal income taxes is required. We file tax returns, including returns for our subsidiaries, with federal, state, and local jurisdictions located in the United States, Canada and China. Our tax returns are subject to examination in various jurisdictions for the calendar years 2003 through 2006.

In accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”), the tax benefit of uncertain tax positions is recognized 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 percent likelihood of being realized upon ultimate settlement with the taxing authority having full knowledge of all the relevant information. As of September 30, 2007, there were no 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, would be recognized in the first period the interest or penalty would begin accruing according to the provisions of the relevant tax law at the applicable statutory rate of interest. We did not incur any tax related interest expense or penalties for the nine months ended September 30, 2007.

Earnings Per Share and Dividends Declared

The following table shows the computation of earnings per share and dividends declared per common share (dollars in thousands, except per share amounts):

Emerging Issue Task Force Topic D-42, “The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock” (“EITF Topic D-42”) provides among other things, that any excess of (1) the fair value of the consideration transferred to the holders of preferred stock redeemed over (2) the carrying amount of preferred stock, should be subtracted from net earnings to determine net income available to common stockholders in the calculation of earnings per share. The cost to issue our preferred stock was recorded as a reduction to additional paid-in capital in the period that the preferred stock was issued. Upon any redemption of our preferred stock, the respective offering costs, representing the excess of the fair value of the consideration transferred to the holders over the carrying amount of the preferred stock, will be recognized as a dividend to preferred stockholders. In February 2007, we called for redemption of our 9.10% Series B Cumulative Redeemable Preferred Stock (“Series B

9

2.              Background and Basis of Presentation (continued)

Earnings Per Share and Dividends Declared (continued)

Preferred Stock”). The Series B Preferred Stock was redeemed in March 2007 at a redemption price equal to $25.00 per share plus $0.4107639 per share representing accumulated and unpaid dividend to the redemption date. In accordance with EITF Topic D-42, we recorded a charge of approximately $2,799,000 to net income available to common stockholders during the nine months ended September 30, 2007 for costs related to the redemption of the Series B Preferred Stock. Dividends on preferred stock are deducted from net income to arrive at net income allocable to common stockholders.

Stock-Based Compensation Expense

Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). Under the modified-prospective transition method of SFAS 123R, compensation cost is recognized over the remaining service period for the portion of outstanding stock options for which the requisite service has not been rendered that were outstanding as of January 1, 2006. The compensation cost is based on the grant-date fair value of those awards. In addition, SFAS 123R requires that we account for an estimate of awards that are expected to vest and to revise the estimate for actual forfeitures. The adoption of SFAS 123R did not have a material impact on our financial statements since all awards accounted for under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) were fully vested prior to the adoption of SFAS 123R.

Impact of Recently Issued Accounting Standards

In August 2007, the FASB released for public comment a proposed FASB Staff Position (“FSP”) that would affect the accounting treatment for convertible debt instruments, such as our outstanding convertible notes, that may be settled wholly or partially in cash. The proposed FSP requires that instruments within its scope be separated into their liability and equity components at initial recognition by recording the liability component at the fair value of a similar liability that does not have an associated equity component and attributing the remaining proceeds from issuance to the equity component. The excess of the principal amount of the liability component over its initial fair value shall be amortized to interest expense using the interest method. The proposed FSP is expected to be effective for our financial statements for the year ended December 31, 2008 and the related interim periods, and would be applied retrospectively to prior periods. If the FSP is issued as proposed, we expect an increase in our non-cash interest expense associated with our $460 million aggregate principal amount outstanding of convertible notes that were issued in January 2007, including non-cash interest expense for prior periods as a result of its proposed retrospective application. We believe the additional interest expense we may recognize under the proposed FSP for the years ended December 31, 2007 and 2008 is in the range of approximately 8% to 9% of interest expense.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses shall be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective January 1, 2008. We are currently evaluating the impact, if any, of SFAS 159 on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which provides a framework for measuring fair value, clarifies the definition of fair value within the framework and expands disclosures about the use of fair value measurements. SFAS 157 applies to all existing pronouncements under GAAP that require or permit the use of fair value measurements, except for SFAS 123R. SFAS 157 is effective for fair value measurements beginning in our first quarter of 2008. We do not expect the adoption of SFAS 157 to have a material impact on our financial statements.

10

3.              Rental Properties, Net

Rental properties, net consist of the following (in thousands):

4.              Investments

We hold equity investments in certain publicly-traded companies and privately held entities primarily involved in the life science industry. All of our investments in publicly-traded companies are considered “available-for-sale” in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and are recorded at fair value. Investments in privately held entities are generally accounted for under the cost method because we do not influence any operating and financial policies of the entities in which we invest. Certain investments are accounted for under the equity method in accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”) and Emerging Issues Task Force Topic D-46, “Accounting for Limited Partnerships” (“EITF Topic D-46”). For all our investments, if a decline in the fair value of an investment below its carrying value is determined to be other than temporary, such investment is written down to its estimated fair value with a non-cash charge to current earnings. The factors that we consider in making these assessments include, but are not limited to, market prices, market conditions, prospects for favorable or unfavorable clinical trial results, new product initiatives and new collaborative agreements.

The following table summarizes our available-for-sale securities (in thousands):

We believe that the gross unrealized losses shown above are temporary, and accordingly we have not recognized an other-than-temporary impairment related to available-for-sale securities as of September 30, 2007 and December 31, 2006.

Our investments in privately held entities as of September 30, 2007 and December 31, 2006 totaled $53,196,000 and $48,642,000, respectively. Of these totals, $52,743,000 and $48,013,000 are accounted for under the cost method. The remainder ($453,000 and $629,000 as of September 30, 2007 and December 31, 2006, respectively) are accounted for under the equity method in accordance with APB 18 and EITF Topic D-46. As of September 30, 2007, there were no unrealized losses in our investments in privately held entities.

5.              Unsecured Line of Credit and Unsecured Term Loan

In May 2007, we entered into an amendment to our amended and restated credit agreement to increase the maximum permitted borrowings under our unsecured credit facilities from $1.4 billion to $1.9 billion consisting of a $1.15 billion unsecured line of credit and a $750 million unsecured term loan. We may in the future elect to increase commitments under the unsecured credit facilities by up to an additional $500 million.

Borrowings under our unsecured line of credit, as amended, bear interest at a floating rate based on our election of either a LIBOR-based rate or the higher of the bank’s reference rate and the Federal Funds rate plus 0.5%. For each LIBOR-based advance, we must elect a LIBOR period of one, two, three or six months. Our unsecured line of credit matures in October 2010 and may be extended

11

5.              Unsecured Line of Credit and Unsecured Term Loan (continued)

at our sole option for an additional one-year period. As of September 30, 2007, we had borrowings of $130 million outstanding under the unsecured line of credit with a weighted average interest rate of 6.91%.

Our unsecured term loan bears interest at a floating rate based on our election of either a LIBOR-based rate or the higher of the bank’s reference rate and the Federal Funds rate plus 0.5%. For each LIBOR-based advance, we must elect to fix for a period of one, two, three or six months. Our unsecured term loan matures in October 2011 and may be extended at our sole option for an additional one-year period. As of September 30, 2007, we had borrowings of $750 million outstanding under the unsecured term loan with a weighted average interest rate of 6.35%.

Our unsecured line of credit and our unsecured term loan contain financial covenants, including, among other things, maintenance of minimum net worth, a leverage ratio and a fixed charge coverage ratio. In addition, the terms of the unsecured line of credit and unsecured term loan restrict, among other things, certain investments, indebtedness, distributions and mergers.

Aggregate unsecured borrowings may be limited to an amount based primarily on the net operating income derived from a pool of unencumbered properties. Aggregate unsecured borrowings may increase as we complete the development, redevelopment or acquire additional unencumbered properties. As of September 30, 2007, aggregate unsecured borrowings were limited to approximately $1.8 billion.

6.              Unsecured Convertible Notes

In January 2007, we completed a private offering of $460 million of convertible notes that are due in 2027 (the “Notes”) with a coupon of 3.70%. The Notes have an initial conversion rate of approximately 8.4774 common shares per $1,000 principal amount of the Notes representing a conversion price of approximately $117.96 per share of our common stock and a conversion premium of 20% based on the last reported sale price of $98.30 per share of our common stock on January 10, 2007. The net proceeds from this offering, after underwriters’ discount, were approximately $450.8 million.

Holders of the Notes may convert their Notes into cash and, if applicable, shares of our common stock prior to stated maturity only under the following circumstances:  (1) the Notes will be convertible during any calendar quarter after the calendar quarter ending March 31, 2007, if the closing sale price of our common stock for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) the Notes will be convertible during the five consecutive business days immediately after any five consecutive trading day period (the “Note Measurement Period”) in which the average trading price per $1,000 principal amount of Notes was equal to or less than 98% of the average conversion value of the Notes during the Note Measurement Period; (3) the Notes will be convertible upon the occurrence of specified corporate transactions; (4) the Notes will be convertible if we call the Notes for redemption; and (5) the Notes will be convertible at any time from, and including, December 15, 2026 until the close of business on the business day immediately preceding January 15, 2027 or earlier redemption or repurchase.

Prior to January 15, 2012, we will not have the right to redeem the Notes, except to preserve our qualification as a real estate investment trust. On and after that date, we have the right to redeem the Notes, in whole or in part, at any time and from time to time, for cash equal to 100% of the principal amount of the Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date.

Holders of the Notes may require us to repurchase their Notes, in whole or in part, on January 15, 2012, 2017 and 2022 for cash equal to 100% of the principal amount of the Notes to be purchased plus any accrued and unpaid interest to but excluding the repurchase date.

7.              Interest Rate Swaps

We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates primarily associated with our unsecured line of credit and unsecured term loan. These agreements involve an exchange of fixed and floating rate interest payments without the exchange of the underlying principal amount (the “notional amount”). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.

12

7.              Interest Rate Swaps (continued)

The following table summarizes our interest rate swap agreements as of September 30, 2007 (dollars in thousands):

8.              Minority Interest

Minority interest represents the third party interests in certain entities in which we have a controlling interest. These entities own nine properties and two development parcels and are included in our consolidated financial statements. Minority interest is adjusted for additional contributions, distributions to minority holders and the minority holders’ proportionate share of the net earnings or losses of each respective entity. Distributions, profits and losses related to these entities are allocated in accordance with the respective operating agreements. As of September 30, 2007 and December 31, 2006, the aggregate minority interest balances related to these entities were approximately $59.7 million and $57.5 million, respectively, and are classified as minority interest in the accompanying condensed consolidated balance sheets.

9.              Stockholders’ Equity

In September 2007, we sold 2,000,000 shares of our common stock in an underwritten offering. The shares were issued at a price of $96.00 per share, resulting in aggregate proceeds of approximately $187 million (after deducting underwriting discounts and other offering costs). In October 2007, we sold 300,000 shares of our common stock in an exercise of the underwriters’ over-allotment option, resulting in aggregate proceeds of approximately $28 million.

In September 2007, we declared a cash dividend on our common stock aggregating $24,066,000 ($0.76 per share) for the calendar quarter ended September 30, 2007. In September 2007, we also declared cash dividends on our 8.375% Series C Cumulative Redeemable Preferred Stock aggregating $2,714,000 ($0.5234375 per share), for the period July 16, 2007 through October 15, 2007.

In February 2007, we called for redemption of our 9.10% Series B Preferred Stock. The Series B Preferred Stock was redeemed in March 2007 at a redemption price equal to $25.00 per share plus $0.4107639 per share representing accumulated and unpaid dividends to the redemption date. In accordance with EITF Topic D-42, we recorded a charge of approximately

13

9.              Stockholders’ Equity (continued)

$2,799,000 to net income available to common stockholders in February 2007 for costs related to the redemption of the Series B Preferred Stock.

10.       Discontinued Operations

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), we classify a property as “held for sale” when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the property; (2) the property is available for immediate sale in its present condition, subject only to the terms that are usual and customary; (3) an active program to locate a buyer, and other actions required to complete the plan to sell, have been initiated; (4) the sale of the property is probable and is expected to be completed within one year; (5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) 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. When the property is classified as “held for sale”, its operations are classified as discontinued operations in our consolidated statements of income. When a property is designated as “held for sale”, amounts for all prior periods presented are reclassified from continuing operations to discontinued operations. A loss is recognized for any initial adjustment of the asset’s carrying amount to fair value less costs to sell in the period the asset qualifies as “held for sale”. Depreciation of assets is discontinued commencing on the date they are designated as “held for sale”.

The following is a summary of income from discontinued operations, net and net assets of discontinued operations (in thousands):

Income from discontinued operations, net for three months ended September 30, 2007, includes one property and four land parcels that were sold during the third quarter 2007 and one property classified as “held for sale” as of September 30, 2007. Income from discontinued operations, net for three months ended September 30, 2006, includes the results of operations and the gains on sales of one property that was sold during the first quarter of 2007, one property that was sold during the second quarter of 2007 and one property that was sold during the third quarter of 2007. Income from discontinued operations, net for nine months ended September 30, 2007, includes three properties and four land parcels that were sold during the nine months ended September 2007 and one property classified as “held for sale” as of September 30, 2007. Income from discontinued operations, net for nine months ended September 30, 2006, includes three properties and four land parcels that were sold during the nine months ended September 30, 2007 and three properties that were sold during the second quarter of 2006. During the third quarter of 2007, we sold one property located in the New Jersey/Suburban Philadelphia market and sold four land parcels located in the Eastern Massachusetts market.

14

Item 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain information and statements included in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believes”, “expects”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates” or “anticipates”, or the negative of these words or similar words, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by the forward-looking statements, including, but not limited to, those described below in this report and under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2006. We do not take any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any other document, whether as a result of new information, future events or otherwise. Readers of this Quarterly Report on Form 10-Q should also read our Securities and Exchange Commission and other publicly filed documents for further discussion regarding such factors.

The following discussion should be read in conjunction with the financial statements and notes appearing elsewhere in this report.

Overview

Since our formation in October 1994, we have devoted substantially all of our resources to the ownership, operation, management, selective development, redevelopment and acquisition of life science properties. Our properties are designed and improved for lease primarily to institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, life science product, service, biodefense and translational medicine entities, as well as governmental agencies.

As of September 30, 2007, we had 167 properties containing approximately 11.8 million rentable square feet of office/laboratory space. As of that date, our properties were approximately 94.1% leased, excluding spaces at properties undergoing a permanent change in use to office/laboratory space through redevelopment and one property that was classified as “held for sale” as of September 30, 2007. Our primary sources of revenue are rental income and tenant recoveries from leases of our properties. The comparability of financial data from period to period is affected by the timing of our property development, redevelopment and acquisition activities.

As of September 30, 2007, approximately 89% of our leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses, including increases thereto. In addition, as of September 30, 2007, approximately 4% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Additionally, as of September 30, 2007, approximately 90% of our leases (on a square footage basis) provided for the recapture of certain capital expenditures and approximately 94% of our leases (on a square footage basis) contained effective annual rent escalations that are either fixed or indexed based on the consumer price index or another index.

15

Results of Operations

Comparison of Three Months Ended September 30, 2007 (“Third Quarter 2007”) to Three Months Ended September 30, 2006 (“Third Quarter 2006”)

Rental revenues increased by $14.8 million, or 23%, to $78.6 million for Third Quarter 2007 compared to $63.9 million for Third Quarter 2006. The increase resulted primarily from rental revenues from properties acquired, placed in service or redeveloped during the periods after July 1, 2006 and increases in rental rates related to renewed and/or releasable space leased.

Tenant recoveries increased by $4.3 million, or 25%, to $21.8 million for Third Quarter 2007 compared to $17.4 million for Third Quarter 2006. The increase resulted primarily from tenant recoveries from properties acquired, placed in service or redeveloped during the periods after July 1, 2006.

Other income for Third Quarter 2007 and Third Quarter 2006 of $3.7 million and $3.4 million, respectively, represents construction management fees, interest, investment income and storage income. As a percentage of total revenues, other income for Third Quarter 2007 remained relatively consistent with Third Quarter 2006 at approximately 3% to 4% of total revenues.

Rental operating expenses increased by $5.7 million, or 29%, to $25.5 million for Third Quarter 2007 compared to $19.8 million for Third Quarter 2006. The increase resulted primarily from rental operating expenses (primarily property taxes, insurance and utilities) from properties acquired, placed in service or redeveloped during the periods after July 1, 2006. The majority of the increase in rental operating expenses is recoverable from our tenants through tenant recoveries.

General and administrative expenses increased by $1.7 million, or 25%, to $8.3 million for Third Quarter 2007 compared to $6.7 million for Third Quarter 2006 primarily due to the growth in both the depth and breadth of our operations in multiple markets, including internationally, from 150 properties with approximately 10.6 million rentable square feet at September 30, 2006 to 167 properties with approximately 11.8 million rentable square feet at September 30, 2007. As a percentage of total revenues, general and administrative expenses for Third Quarter 2007 remained relatively consistent with Third Quarter 2006 at approximately 8% of total revenues.

Interest expense increased by $4.9 million, or 26%, to $23.9 million for Third Quarter 2007 compared to $19.0 million for Third Quarter 2006. The increase resulted primarily from an increase in indebtedness on our unsecured line of credit and unsecured term loan and outstanding indebtedness related to our unsecured convertible notes. These borrowings were utilized to finance the development, redevelopment and acquisition of properties in 2006 and 2007. We have entered into certain swap agreements to hedge a portion of our exposure primarily related to variable interest rates associated with our unsecured line of credit and unsecured term loan (see “Liquidity and Capital Resources — Interest rate swaps”).

Depreciation and amortization increased by $4.3 million, or 22%, to $24.1 million for Third Quarter 2007 compared to $19.8 million for Third Quarter 2006. The increase resulted primarily from depreciation associated with the properties acquired, placed in service or redeveloped during the periods after July 1, 2006.

Income from discontinued operations, net of $1.6 million for Third Quarter 2007 reflects the results of operations and gains on sales of one property and four land parcels sold during the Third Quarter 2007 and the results of operations of one property classified as “held for sale” as of September 30, 2007.

Comparison of Nine Months Ended September 30, 2007 (“Nine Months 2007”) to Nine Months Ended September 30, 2006 (“Nine Months 2006”)

Rental revenues increased by $54.6 million, or 32%, to $225.0 million for Nine Months 2007 compared to $170.4 million for Nine Months 2006. The increase resulted primarily from rental revenue from properties acquired, placed in service or redeveloped during the periods after January 1, 2006 and increases in rental rates related to renewed and/or releasable space leased.

Tenant recoveries increased by $16.8 million, or 38%, to $61.4 million for Nine Months 2006 compared to $44.6 million for Nine Months 2006. The increase resulted primarily from properties acquired, placed in service or redeveloped during the periods after January 1, 2006.

16

Other income for Nine Months 2007 and Nine Months 2006 of $10.9 million and $7.9 million, respectively, represents construction management fees, interest, investment, and storage income. The increase in other income from Nine Months 2007 compared to Nine Months 2006 is due to overall increases in interest, investment and storage income offset by a decrease in construction management fees. As a percentage of total revenues, other income for Nine Months 2007 remained relatively consistent with Nine Months 2006 at approximately 3% to 4% of total revenues.

Rental operating expenses increased by $23.1 million, or 47%, to $72.4 million for Nine Months 2007 compared to $49.3 million for Nine Months 2006. The increase resulted primarily from increases in rental operating expenses (primarily property taxes, insurance and utilities) from properties acquired, placed in service or redeveloped during the periods after January 1, 2006. The majority of the increase in rental operating expenses is recoverable from our tenants through tenant recoveries.

General and administrative expenses increased by $5.0 million, or 26%, to $24.3 million for Nine Months 2007 compared to $19.4 million for Nine Months 2006 primarily due to the growth in both the depth and breadth of our operations in multiple markets, including internationally, from 150 properties with approximately 10.6 million rentable square feet at September 30, 2006 to 167 properties with approximately 11.8 million rentable square feet at September 30, 2007. As a percentage of total revenues, general and administrative expenses for Nine Months 2007 remained relatively consistent with Nine Months 2006 at approximately 8-9% of total revenues.

Interest expense increased by $14.2 million, or 28%, to $64.4 million for Nine Months 2007 compared to $50.2 million for Nine Months 2006. The increase resulted primarily from an increase in indebtedness on our unsecured line of credit and unsecured term loan and outstanding indebtedness related to our unsecured convertible notes. These borrowings were utilized to finance the development, redevelopment and acquisition of properties in 2006 and 2007. We have entered into certain swap agreements to hedge a portion of our exposure to variable interest rates with our unsecured line of credit and unsecured term loan (see “Liquidity and Capital Resources – Interest Rate Swaps”).

Depreciation and amortization increased by $19.0 million, or 37%, to $70.0 million for Nine Months 2007 compared to $51.0 million for Nine Months 2006. The increase resulted primarily from depreciation associated with the properties acquired, placed in service or redeveloped during the periods after January 1, 2006.

Income from discontinued operations, net of $5.3 million for Nine Months 2007, reflects the results of operations and gains on sales of three properties and four land parcels that were sold during the Nine Months 2007 and the results of operations of one property classified as “held for sale” as of September 30, 2007.

Liquidity and Capital Resources

Cash flows

Net cash provided by operating activities for Nine Months 2007 increased by $58.9 million to $138.5 million compared to $79.7 million for Nine Months 2006. The increase resulted primarily from an increase in cash flows from operations and cash flows from overall changes in operating assets and liabilities.

Net cash used in investing activities for Nine Months 2007 was $653.5 million as compared to $642.7 million for Nine Months 2006. Net cash used in investing activities was relatively consistent for the Nine Months 2007 and Nine Months 2006 with a higher level of investments in properties undergoing development offset by a lower level of purchases of rental properties during the Nine Months 2007 as compared to the Nine Months 2006.

Net cash provided by financing activities for Nine Months 2007 decreased by $44.1 million to $522.8 million compared to $566.9 million for Nine Months 2006. In Nine Months 2007, proceeds from secured notes payable, the issuance of unsecured convertible notes, borrowings from our unsecured line of credit and term loan, and the issuance of common stock were approximately $1,654 million and principal repayments on secured notes payable and our unsecured line of credit were approximately $999.3 million. In addition, funds totaling approximately $57.5 million were used to redeem our Series B preferred stock in Nine Months 2007. In Nine Months 2006, proceeds from secured notes payable, the issuance of common stock and borrowings from our unsecured line of credit and term loan were approximately $1,680 million and principal repayments on secured notes payable and our unsecured line of credit were approximately $1,053 million. In addition, dividends paid to common stockholders for Nine Months 2007 increased to

17

$66.0 million from $50.5 million for Nine Months 2006.

Contractual obligations and commitments

Contractual obligations as of September 30, 2007, consist of the following (in thousands):

Secured notes payable as of September 30, 2007 included 33 notes secured by 74 properties and 5 land development parcels.

Our unsecured line of credit matures in October 2010 and may be extended at our sole option for an additional one-year period. Our unsecured term loan matures in October 2011 and may be extended at our sole option for an additional one-year period.

Ground lease obligations as of September 30, 2007 included leases for nineteen of our properties and three land development parcels. These lease obligations have remaining lease terms of 26 to 99 years, exclusive of extension options.

In addition to the above, we were committed as of September 30, 2007 under the terms of contracts to complete the construction of properties under development at a remaining aggregate cost of approximately $348.6 million.

As of September 30, 2007, we were also committed to fund approximately $59.9 million for the construction of building infrastructure improvements under the terms of leases and/or construction contracts and approximately $26.0 million for certain investments.

Tenant security deposits and other restricted cash

Tenant security deposits and other restricted cash consist of the following (in thousands):

Secured notes payable

Secured notes payable totaled $1.2 billion as of September 30, 2007 and December 31, 2006. Our secured notes payable had weighted average interest rates of 6.13% and 6.21% at September 30, 2007 and December 31, 2006, respectively, with maturity dates ranging from November 2007 to August 2016.

Our secured notes payable generally require monthly payments of principal and interest. At September 30, 2007, our secured notes payable were comprised of $891 million and $272 million of fixed and variable rate debt, respectively, compared to $940 million and $235 million of fixed and variable rate debt, respectively, at December 31, 2006.

18

The following is a summary of the scheduled principal payments for our secured debt and the weighted average interest rates as of September 30, 2007 (in thousands):