References to the "Company", "we", "our" and "us" refer to Alexandria Real Estate Equities, Inc. and its subsidiaries.

Alexandria Real Estate Equities, Inc. is a real estate investment trust ("REIT") formed in 1994. We are engaged principally in the ownership, operation, management, selective redevelopment, development and acquisition of properties for the life sciences industry. 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 research entities, as well as governmental agencies. As of December 31, 2006, we had 159 properties (156 properties located in nine states in the United States and three properties located in Canada) with approximately 11.2 million rentable square feet of office/laboratory space, compared to 133 properties (130 properties located in nine states in the United States and three properties located in Canada) with approximately 8.8 million rentable square feet of office/laboratory space as of December 31, 2005.

As of December 31, 2006, approximately 90% 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 December 31, 2006, approximately 4% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Additionally, as of December 31, 2006, approximately 91% of our leases (on a square footage basis) provided for the recapture of certain capital expenditures and approximately 89% 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. The information provided in this paragraph is unaudited.

The accompanying 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 a limited partnership and in limited liability companies 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 limited partnership and limited liability companies because we exercise significant control over major decisions by these entities, such as investment activity and changes in financing.

The preparation of financial statements in conformity with United States generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

The carrying amounts of cash and cash equivalents, tenant receivables, unsecured line of credit and unsecured term loan, and accounts payable, accrued expenses and tenant security deposits approximate fair value.

The fair value of our secured notes payable was estimated using discounted cash flows analyses based on borrowing rates we believe we could obtain with similar terms and maturities. As of December 31, 2006 and 2005, the fair values of our secured notes payable were approximately $1,179,404,000 and $682,835,000, respectively.

We view our operations as principally one segment and the financial information disclosed herein represents all of the financial information related to our principal operating segment.

The functional currency for our subsidiaries operating in the United States is the U.S. dollar. During 2005, we acquired three operating properties in Canada through wholly-owned Canadian subsidiaries. The functional currency for our foreign subsidiaries operating in Canada is the local currency, the Canadian dollar. 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.

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.

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 values allocated to land improvements, buildings, building improvements, tenant improvements and equipment are depreciated on a straight-line basis using an estimated life of 20 years for land improvements, 40 years for buildings and building improvements, the respective lease term for tenant improvements and the estimated useful life for equipment. The values of above and below market leases are amortized over the life of the related lease and recorded as either an increase (for below market leases) or a decrease (for above market leases) to rental income. The values of at-market leases and origination costs are classified as leasing costs, included in other assets in the accompanying consolidated balance sheets and amortized over the remaining life of the lease.

In accordance with SFAS 141, the values of above and below market leases are amortized over the life of the related lease and recorded as either an increase (for below market leases) or a decrease (for above market leases) to rental income. The value of acquired leases, less accumulated amortization, was approximately $36,389,000 as of December 31, 2006. The weighted average amortization period of acquired leases is approximately 9.5 years. The estimated aggregate annual amortization of acquired leases for each of the five succeeding years is $5,454,000 for 2007, $4,621,000 for 2008, $4,519,000 for 2009, $4,392,000 for 2010 and $3,442,000 for 2011.

Rental properties, properties undergoing development and land held for development and intangibles are individually evaluated for impairment in accordance with SFAS 141 when conditions exist which may indicate that it is probable that the sum of expected future undiscounted cash flows is less than the carrying amount. Upon determination that an impairment has occurred, a write-down is recorded to reduce the carrying amount to its estimated fair value.

In accordance with Statement of Financial Accounting Standards No. 34, "Capitalization of Interest Cost" ("SFAS 34") and Statement of Financial Accounting Standards No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects" ("SFAS 67"), we capitalize direct construction and development costs, including predevelopment costs, interest, property taxes, insurance and other costs directly related and essential to the acquisition, development or construction of a project. Pursuant to SFAS 34 and SFAS 67, capitalization of construction, development and redevelopment costs is required while activities are ongoing to prepare an asset for its intended use. Costs incurred after a project is substantially complete and ready for its intended use are expensed as incurred. Costs previously capitalized related to abandoned acquisitions or development opportunities are written off. Should development activity cease, a portion of interest, property taxes, insurance and certain costs would no longer be eligible for capitalization, and would be expensed as incurred. Expenditures for repairs and maintenance are expensed as incurred.

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 and 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 ceases upon designation of a property as "held for sale".

Some of our properties may have asbestos which, under certain conditions, requires 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 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. Conditional asset retirement obligations totaled approximately $6.9 million as of December 31, 2006 and are included in accounts payable, accrued expenses and tenant security deposits.

We consider all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

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

                                                                  December 31,
                                                             ----------------------
                                                                2006        2005
                                                             ----------  ----------
Funds held in trust under the terms of
    certain secured notes payable                           $   20,071  $   13,838

Other funds held in escrow                                      14,289       7,175
                                                             ----------  ----------
                                                            $   34,360  $   21,013
                                                             ==========  ==========

Investments in privately held entities are generally accounted for under the cost method because we do not influence any operating or 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 Partnership Investments" ("EITF Topic D-46"). Under the equity method we record our investment initially at cost and adjust the carrying amount of the investment to recognize our share of the earnings or losses of the investee subsequent to the date of our investment.

Individual investments are evaluated for impairment when conditions exist which may indicate that it is probable that an impairment exist. 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. For all of 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.

Costs directly related and essential to our leasing activities are capitalized and amortized on a straight-line basis over the term of the related lease. Costs related to unsuccessful leasing opportunities are expensed. Leasing costs, net of related amortization, totaled $45,980,000 and $32,924,000 as of December 31, 2006 and 2005, respectively, and are included in other assets in the accompanying consolidated balance sheets.

Lease origination costs recorded pursuant to SFAS 141 are included in amounts immediately above and are classified as leasing costs, included in other assets in the accompanying consolidated balance sheets and amortized over the remaining life of the lease. The value of lease origination costs, net of related amortization recognized pursuant to SFAS 141, was approximately $17,004,000 as of December 31, 2006. The annual amortization of lease origination costs pursuant to SFAS 141 for each of the five succeeding years is $4,266,000 for 2007, $3,357,000 for 2008, $2,956,000 for 2009, $2,259,000 for 2010 and $1,497,000 for 2011.

Fees and costs incurred in obtaining long-term financing are amortized over the terms of the related loans and included in interest expense in the accompanying consolidated statements of income. Loan fees and costs, net of related amortization, totaled $19,390,000 and $14,789,000 as of December 31, 2006 and 2005, respectively, and are included in other assets in the accompanying consolidated balance sheets.

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.

Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" establishes accounting and reporting standards for derivative financial instruments such as our interest rate swap agreements. All of our interest rate swap agreements meet the criteria to be deemed "highly effective" under SFAS 133 in reducing our exposure to variable interest rates. In accordance with SFAS 133, we formally document all relationships between interest rate swap agreements and hedged items, including the method for evaluating effectiveness and the risk strategy. Accordingly, we have categorized these instruments as cash flow hedges. We make an assessment at the inception of each interest rate swap agreement and on an on going basis to determine whether these instruments are highly effective in offsetting changes in cash flows associated with the hedged items. The ineffective portion of each interest rate swap agreement is immediately recognized in earnings. While we intend to continue to meet the conditions for such hedge accounting, if hedges did not qualify as "highly effective", the changes in the fair values of the derivatives used as hedges would be reflected in earnings.

Pursuant to SFAS 133, interest rate swaps are reflected at their estimated fair values in the accompanying consolidated balance sheets. We use a variety of methods and assumptions based on market conditions and risks existing at each balance sheet date to determine the fair values of our interest rate swap agreements. These methods of assessing fair value result in a general approximation of value.

We do not believe we are exposed to a significant amount of credit risk in our interest rate swap agreements as our counterparties are established, well-capitalized financial institutions.

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

                                          December 31,
                                     -----------------------
                                         2006        2005
                                     ----------- -----------
Unrealized gain on marketable
   securities                        $   21,737  $   28,373
Unrealized gain on interest
   rate swap agreements                     973       4,867
Unrealized gain on foreign
   currency translation                   1,885       1,793
                                     ----------- -----------
                                     $   24,595  $   35,033
                                     =========== ===========

Rental income from leases with scheduled rent increases, free rent, incentives and other rent adjustments are recognized on a straight-line basis over the respective lease terms. We include amounts currently recognized as income, and expected to be received in later years, in deferred rent in the accompanying consolidated balance sheets. Amounts received currently, but recognized as income in future years, are included as unearned rent in accounts payable, accrued expenses and tenant security deposits in the accompanying consolidated balance sheets. We commence recognition of rental income at the date the property is ready for its intended use and the tenant takes possession of or controls the physical use of the property.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred.

We maintain an allowance for estimated losses that may result from the inability of our tenants to make required payments. If a tenant fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and unrealized deferred rent. As of December 31, 2006 and 2005, we had no allowance for doubtful accounts.

Interest income was $1,303,000, $578,000, and $181,000 in 2006, 2005 and 2004, respectively, and is included in other income in the accompanying consolidated statements of income.

As a REIT, we are not subject to federal income taxation as long as we meet a number of organizational and operational requirements and make distributions greater than or equal to 100% of our taxable income to our stockholders. Since we believe we have met these requirements and our distributions exceeded taxable income, no federal income tax provision has been reflected in the accompanying consolidated financial statements for the years ended December 31, 2006, 2005 and 2004. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.

During 2006, 2005 and 2004, we declared dividends on our common stock of $2.86, $2.72, and $2.52 per share, respectively. During 2004, we declared dividends on our Series A cumulative redeemable preferred stock of $1.72847. During 2006, 2005 and 2004, we declared dividends on our Series B cumulative redeemable preferred stock of $2.275, $2.275 and $2.275, respectively. During 2006, 2005 and 2004, we declared dividends on our Series C cumulative redeemable preferred stock of $2.09375, $2.09375 and $0.61649 per share, respectively. See Note 11, Preferred Stock and Excess Stock.

The tax treatment of distributions on common stock paid in 2006 is as follows: (1) 82.1% ordinary dividend, (2) 12.3% capital gain at 15%, (3) 3.3% return of capital, and (4) 2.3% Section 1250 capital gain at 25%. The tax treatment of distributions on common stock paid in 2005 is as follows: (1) 71.8% ordinary dividend, (2) 3.9% capital gain at 15%, (3) 24.1% return of capital, and (4) 0.2% Section 1250 capital gain at 25%. The information provided in this paragraph is unaudited.

The following table shows the computation of earnings per share, and dividends declared per common share:

                                                                Year Ended December 31,
                                                     ------------------------------------------
                                                         2006          2005           2004
                                                     ------------  -------------  -------------
                                                 (Dollars in thousands, except per share amounts)

Net income available to common
   stockholders                                     $     57,326  $      47,343  $      45,724
                                                     ============  =============  =============
Weighted average shares of common stock
   outstanding - basic                                25,102,200     20,948,915     19,315,364
Add: dilutive effect of stock options
   and stock grants                                      422,278        367,971        343,395
                                                     ------------  -------------  -------------
Weighted average shares of common stock
   outstanding - diluted                              25,524,478     21,316,886     19,658,759
                                                     ============  =============  =============
Net income available to common
   stockholders - basic                             $       2.28  $        2.26  $        2.37
Net income available to common                       ============  =============  =============
   stockholders - diluted                           $       2.25  $        2.22  $        2.33
                                                     ============  =============  =============

Dividends declared per common share                 $       2.86  $        2.72  $        2.52
                                                     ============  =============  =============

Emerging Issues 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 the 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. During 2004, we recorded a charge of approximately $1,876,000 to net income available to common stockholders for costs related to the redemption of our 9.5% Series A cumulative redeemable preferred stock. Dividends on preferred stock are deducted from net income to arrive at net income allocable to common stockholders.

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 had 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. Effective January 1, 2003, we had adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("SFAS 123") prospectively to all employee awards granted, modified or settled after January 1, 2003. We have not granted any stock options since 2002.

For 2002 and all prior years, we elected to follow ABP 25 and related interpretations in accounting for our employee and non- employee director stock options, stock grants and stock appreciation rights. Under APB 25, because the exercise price of the options we granted equaled the market price of the underlying stock on the date of grant, no compensation expense related to stock options has been recognized. Although we have elected to follow APB 25 for options granted prior to January 1, 2003, pro forma information regarding net income and net income per share is required by SFAS 123R for all periods presented prior to 2006 as if we had accounted for stock options under the fair value method under SFAS 123.

For purposes of the following pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods (in thousands, except per share information):

                                                               Year Ended December 31,
                                                     --------------------------- --------------
                                                         2006          2005           2004
                                                     ------------  -------------  -------------
Net income available to common
     stockholders, as reported                      $     57,326  $      47,343  $      45,724
Fair value of stock-based compensation cost                  --            (152)          (733)
                                                     ------------  -------------  -------------
Pro forma net income available to common
     stockholders                                   $     57,326  $      47,191  $      44,991
                                                     ============  =============  =============
Earnings per share:

     Basic - as reported                            $       2.28  $        2.26  $        2.37
     Basic - pro forma                              $       2.28  $        2.25  $        2.33

     Diluted - as reported                          $      $2.25  $       $2.22  $       $2.33
     Diluted - pro forma                            $      $2.25  $       $2.21  $       $2.29

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.

In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 increases the relevancy and comparability of financial reporting by clarifying the way a company accounts for uncertainty in measuring income taxes. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 only allows a favorable tax position to be included in the calculation of tax liabilities and expenses if a company concludes that it is more likely than not that its adopted tax position will prevail if challenged by tax authorities. FIN 48 also provides guidance on the accounting and recording of interest and penalties on uncertain tax positions. FIN 48 is effective for accounting of income taxes beginning in our first quarter of 2007. We do not expect the adoption of FIN 48 to have a material impact on our financial statements.

In December 2005, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of Nonmonetary Assets" ("SFAS 153"), which amends Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions" ("APB 29"). SFAS 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair values of the assets exchanged. SFAS 153 is effective for nonmonetary asset exchanges beginning in our third quarter of 2005. The adoption of SFAS 153 did not have a material impact on our financial statements.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"), which replaces Accounting Principles Board Opinion No. 20, "Accounting Changes" and Statement of Financial Accounting Standards No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS 154 requires retrospective application to prior periods' financial statements of voluntary changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes and corrections of errors beginning in 2006. The adoption of SFAS 154 did not have an impact on our financial statements.

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

                                                             December 31,
                                                     ---------------------------
                                                         2006          2005
                                                     ------------  -------------

Land                                                $    482,310  $     296,841
Buildings and improvements                             2,536,542      1,559,385
Tenant and other improvements                            185,649        153,482
                                                     ------------  -------------
                                                       3,204,501      2,009,708
Less accumulated depreciation                           (279,620)      (220,890)
                                                     ------------  -------------
                                                    $  2,924,881  $   1,788,818
                                                     ============  =============

As of December 31, 2006 and 2005, certain of our rental properties were encumbered by deeds of trust and assignments of rents and leases associated with the properties. See Note 5, Secured Notes Payable. The net book values of encumbered properties including land parcels as of December 31, 2006 and 2005 were $1,107,526,000 and $848,286,000, respectively.

We lease space under noncancelable leases with remaining terms of up to 17 years.

In July 2006, we completed the acquisition of a 90% equity interest in the leasehold interest in 10.4 acres commonly known as Technology Square ("Tech Square") at Massachusetts Institute of Technology ("MIT") in Cambridge, Massachusetts. The remaining 10% equity interest was retained by MIT. MIT is also a tenant at Tech Square occupying 178,952 rentable square feet as of December 31, 2006. The results of Tech Square's operations have been included in our consolidated financial statements since that date. Tech Square consists of a seven building campus (including a 1,593 space covered car parking garage and a 49 space surface parking lot) containing approximately 1.2 million square feet and is subject to a ground lease with an affiliate of MIT through December 31, 2064.

In accordance with FAS 141, we allocated the purchase price of Tech Square based upon the relative fair values of the assets acquired and liabilities assumed including rental properties of $616 million, other assets of $5 million, secured notes payable of $220 million, accounts payable, accrued expenses and tenant security deposits of $26 million and minority interest of $37 million.

Our financial statements, on an unaudited pro forma basis, for the acquisitions of Tech Square, the issuance of 2.5 million shares of common stock with proceeds of approximately $232 million and borrowings on our unsecured line of credit of approximately $106 million as if it had occurred on January 1, 2005, would have reflected total consolidated revenues of $347.5 million and $287.6 million for the years ended December 31, 2006 and 2005, respectively. Net income available to common stockholders would have been approximately $60.6 million and $51.9 million for the years ended December 31, 2006 and 2005, respectively. Net income available to common stockholders on a diluted per share basis would have been $2.21 and $2.18 for the years ended December 31, 2006 and 2005, respectively. All other properties acquired during the year comprise of a series of individually insignificant transactions, both individually and in aggregate, and have been excluded from this pro forma analysis.

Rental properties, net as of December 31, 2006, include spaces totaling approximately 612,699 rentable square feet at 13 properties in our redevelopment program. Rental properties, net as of December 31, 2005, include spaces totaling approximately 548,051 rentable square feet at 15 properties in our redevelopment program. The allocated net book values of the portion of these properties undergoing redevelopment as of December 31, 2006 and 2005 were approximately $169,131,000 and $139,661,000, respectively. Depreciation ceases on the portion of a property undergoing redevelopment during the period of redevelopment.

In accordance with SFAS 34, we are required to capitalize interest to properties undergoing development or redevelopment during the period an asset is undergoing activities to prepare it for its intended use. Capitalization of interest ceases after a project is substantially complete and ready for its intended use. In addition, should construction activity cease, interest would be expensed as incurred. Total interest capitalized for the years ended December 31, 2006, 2005 and 2004 was $35,282,000, $27,490,000 and $17,902,000, respectively. Total interest incurred for the years ended December 31, 2006, 2005 and 2004 was $107,643,000, $77,695,000 and $46,733,000, respectively.

Minimum lease payments to be received under the terms of the operating lease agreements, excluding expense reimbursements, as of December 31, 2006 are as follows (in thousands):

Year                                                    Amount
----------------------                               ------------
2007                                                     247,920
2008                                                     236,694
2009                                                     220,923
2010                                                     207,037
2011                                                     174,208
Thereafter                                               587,402
                                                     ------------
                                                    $  1,674,184
                                                     ============

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 SFAS 115, 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 or financial policies of the entities in which we invest. Certain investments are accounted for under the equity method in accordance with APB 18 and EITF Topic D-46. For all of 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. For additional discussion of our accounting policies with respect to investments, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies.

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

                                                       December 31,
                                                  --------------------
                                                     2006       2005
                                                  ---------  ---------
Adjusted cost of available-for-sale securities    $  4,445   $  4,740

Gross unrealized gains                              22,849     29,135

Gross unrealized losses                             (1,112)      (762)
                                                  ---------  ---------

Fair value of available-for-sale securities       $ 26,182   $ 33,113
                                                  =========  =========

Investments in available-for-sale securities with gross unrealized losses as of December 31, 2006 and 2005 have been in a continuous unrealized loss position for less than twelve months. We believe that these unrealized losses are temporary and accordingly we have not recognized an other-than-temporary impairment related to available-for-sale securities as of December 31, 2006 and 2005.

Our investments in privately held entities as of December 31, 2006 and 2005 totaled $48,642,000 and $48,897,000, respectively. Of these totals, $48,013,000 and $47,164,000 are accounted for under the cost method. The remainder ($629,000 and $1,733,000 for 2006 and 2005, respectively) are accounted for under the equity method in accordance with APB 18 and EITF Topic D-46. As of December 31, 2006 and 2005, there were no unrealized losses in our investments in privately held entities.

Net investment income of $7,138,000, $2,294,000, and $2,436,000 was recognized in 2006, 2005 and 2004, respectively, and is included in other income in the accompanying consolidated statements of income. Net investment income in 2006 consisted of equity in loss of $632,000 related to investments in privately held entities accounted for under the equity method, gross realized gains of $8,305,000, and gross realized losses of $535,000. Net investment income in 2005 consisted of equity in income of $483,000 related to investments in privately held entities accounted for under the equity method, gross realized gains of $2,433,000, and gross realized losses of $622,000. Net investment income in 2004 consisted of equity in income of $208,000 related to investments in privately held entities accounted for under the equity method, gross realized gains of $2,508,000, and gross realized losses of $280,000.

5. Secured notes payable

Secured notes payable totaled $1.2 billion and $666.7 million as of December 31, 2006 and 2005, respectively. Our secured notes payable had weighted average interest rates of 6.21% and 6.31% at December 31, 2006 and 2005, respectively, with maturity dates ranging from March 2007 to August 2016.

Our secured notes payable generally require monthly payments of principal and interest. The total net book values of properties securing debt were $1.7 billion and $848.3 million at December 31, 2006 and 2005, respectively. At December 31, 2006, our secured notes payable were comprised of $940.0 million and $234.9 million of fixed and variable rate debt, respectively, compared to $595.9 million and $70.8 million of fixed and variable rate debt, respectively, at December 31, 2005.

Future principal payments due on secured notes payable as of December 31, 2006, are as follows (dollars in thousands):

                                                                      Weighted
                                                                       Average
                       Year                             Amount     Interest Rate (1)
--------------------------------------------------   ------------  ---------------
2007                                                $     72,790             6.21%
2008                                                     290,088             6.17%
2009                                                      45,986             6.26%
2010                                                      93,259             6.23%
2011                                                     108,204             6.09%
Thereafter                                               564,539             6.00%
                                                     ------------
Total secured notes payable                         $  1,174,866
                                                     ============

In October 2006, 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 billion to $1.4 billion consisting of an $800 million unsecured line of credit and a $600 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 at our sole option for an additional one-year period. As of December 31, 2006, we had borrowings of $250 million outstanding on the unsecured line of credit with a weighted average interest rate of 6.50%.

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 December 31, 2006, we had borrowings of $600 million outstanding on the unsecured term loan with a weighted average interest rate of 6.50%.

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 under our credit facilities may be limited to an amount based primarily on the net operating income derived from a pool of unencumbered properties. Accordingly, as we acquire or complete the development or redevelopment of additional unencumbered properties, aggregate unsecured borrowings available under our credit facilities may increase up to a maximum combined amount of $1.4 billion.

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.

SFAS 133, as amended, establishes accounting and reporting standards for derivative financial instruments such as our interest rate swap agreements. All of our interest rate swap agreements meet the criteria to be deemed "highly effective" under SFAS 133 in reducing our exposure to variable interest rates. In accordance with SFAS 133, we formally document all relationships between interest rate swap agreements and hedged items, including the method for evaluating effectiveness and the risk strategy. Accordingly, we have categorized these instruments as cash flow hedges. We make an assessment at the inception of each interest rate swap agreement and on an on going basis to determine whether these instruments are highly effective in offsetting changes in cash flows associated with the hedged items. While we intend to continue to meet the conditions for such hedge accounting, if hedges did not qualify as "highly effective", the changes in the fair values of the derivatives used as hedges would be reflected in earnings.

As of December 31, 2006 and 2005, our interest rate swap agreements were classified in other assets and accounts payable, accrued expenses and tenant security deposits at their fair values aggregating approximately $1.0 million and $4.9 million, respectively, with the offsetting adjustment reflected as unrealized gains in accumulated other comprehensive income in stockholders' equity. Balances in accumulated other comprehensive income are recognized in earnings as swap payments are made. During the next twelve months, we expect to reclassify $3.1 million from accumulated other comprehensive income to interest income.

The following table summarizes our interest rate swap agreements as of December 31, 2006 related to our unsecured line of credit and unsecured term loan (dollars in thousands) ⁽¹⁾:

                                            Notional      Effective at    Interest      Termination        Fair
Transaction Dates      Effective Dates       Amounts   December 31, 2006  Pay Rates        Dates          Values
-------------------- -------------------- ----------- ------------------- ---------  ------------------ ---------

December 2003        December 29, 2006     $ 50,000   $      50,000          5.090%  October 31, 2008   $    (44)

April 2004           April 28, 2006          50,000          50,000          4.230%  April 30, 2007          174

April 2004           April 30, 2007          50,000           --             4.850%  April 30, 2008          106

June 2004            June 30, 2005           50,000          50,000          4.343%  June 30, 2007           232

December 2004        December 31, 2004       50,000          50,000          3.590%  January 2, 2008         864

December 2004        January 3, 2006         50,000          50,000          3.927%  July 1, 2008            909

May 2005             June 30, 2006           50,000          50,000          4.270%  June 29, 2007           253

May 2005             November 30, 2006       25,000          25,000          4.330%  November 30, 2007       201

May 2005             June 29, 2007           50,000           --             4.400%  June 30, 2008           291

May 2005             November 30, 2007       25,000           --             4.460%  November 28, 2008        97

May 2005             June 30, 2008           50,000           --             4.509%  June 30, 2009           151

May 2005             November 28, 2008       25,000           --             4.615%  November 30, 2009        49

December 2005        December 29, 2006       50,000          50,000          4.730%  November 30, 2009       314

December 2005        December 29, 2006       50,000          50,000          4.740%  November 30, 2009       300

December 2005        January 2, 2008         50,000           --             4.768%  December 31, 2010       106

June 2006            June 30, 2006           125,000        125,000          5.299%  September 30, 2009   (1,075)

June 2006            October 31, 2008        50,000           --             5.340%  December 31, 2010      (469)

June 2006            October 31, 2008        50,000           --             5.347%  December 31, 2010      (476)

June 2006            June 30, 2008           50,000           --             5.325%  June 30, 2010          (446)

June 2006            June 30, 2008           50,000           --             5.325%  June 30, 2010          (446)

December 2006        December 31, 2006       50,000          50,000          4.990%  March 31, 2014          (10)

December 2006        June 29, 2007           50,000           --             4.920%  October 31, 2008         19

December 2006        November 30, 2009       75,000           --             5.015%  March 31, 2014          (24)

December 2006        November 30, 2009       75,000           --             5.023%  March 31, 2014          (44)

December 2006        December 31, 2010       100,000          --             5.015%  October 31, 2012          8
                                                      -------------------                               ---------
Total Notional Amount in Effect at December 31, 2006  $     600,000                                     $  1,040
                                                      ===================                               =========

(1) As of December 31, 2006, we had one additional interest rate swap agreement with a notional amount of $28,500,000. This interest rate swap agreement has an interest pay rate of 5.003%, is effective on January 2, 2007, terminates on January 3, 2011 and has a fair value as of December 31, 2006 of approximately $(67,000).

We have a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code whereby our employees may contribute a portion of their compensation to their respective retirement accounts, in an amount not to exceed the maximum allowed under the Internal Revenue Code. In addition to employee contributions, we have elected to provide discretionary profit sharing contributions (subject to statutory limitations), which amounted to $850,000, $552,000, and $515,000, respectively, for the years ended December 31, 2006, 2005 and 2004. Employees who participate in the plan are immediately vested in their contributions and in the contributions of the company.

We maintain our cash and cash equivalents at insured financial institutions. The combined account balances at each institution periodically exceed FDIC insurance coverage, and, as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. We believe that the risk is not significant.

We are dependent on rental income from relatively few tenants in the life science industry. The inability of any single tenant to make its lease payments could adversely affect our operations. As of December 31, 2006, we held 370 leases with a total of 310 tenants and 80 of our 159 properties were each leased to a single tenant. At December 31, 2006, our three largest tenants accounted for approximately 14.9% of our aggregate annualized base rent.

We generally do not require collateral or other security from our tenants, other than security deposits. In addition to security deposits held in cash, we held $58.7 million in irrevocable letters of credit available from certain tenants as security deposits for 110 leases as of December 31, 2006.

As of December 31, 2006, we were committed under the terms of contracts to complete the construction of properties undergoing development and land held for development at a remaining aggregate cost of approximately $58.8 million.

As of December 31, 2006, we were also committed to fund approximately $33.7 million for the construction of building infrastructure improvements under the terms of leases and/or construction contracts and approximately $23.4 million for certain investments.

As of December 31, 2006, we were committed under the terms of ten ground leases. These lease obligations totaling approximately $352.5 million have remaining lease terms of 26 to 58 years, exclusive of extension options. In addition, as of December 31, 2006, we were committed under the terms of certain operating leases for our headquarters and field offices. These lease obligations totaling approximately $5.9 million have remaining lease terms of one to six years, exclusive of extension options. Included in our ground lease obligations as of December 31, 2006 is a ground lease related to our ground-up development project in New York City totaling approximately 725,000 rentable square feet. This ground lease obligation has a remaining term of 99 years, inclusive of extension options.

Minority interest represents the interests in a limited partnership and in three limited liability companies held by certain third parties, which own nine properties and one development parcel, and are included in our consolidated financial statements. We recognize minority interest in these entities in which we have a controlling interest. 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 December 31, 2006, the aggregate minority interest balance related to these entities was approximately $57.5 million and is classified as minority interest in the accompanying consolidated balance sheet.

In September 2006, we sold 2,500,000 shares of our common stock in a follow-on offering. The shares were issued at a price of $94.75 per share, resulting in aggregate proceeds of approximately $232.2 million (after deducting underwriting discounts and other offering costs).

In June 2006, we sold 3,795,000 shares of our common stock in a follow-on offering (including the shares issued upon exercise of the underwriter's over-allotment option). The shares were issued at a price of $84.00 per share, resulting in aggregate proceeds of approximately $303.1 million (after deducting underwriting discounts and other offering costs).

In September 2005, we sold 1,248,000 shares of our common stock in a follow-on offering (including the shares issued upon exercise of the underwriter's over-allotment option). The shares were issued at a price of $81.00 per share, resulting in net proceeds of approximately $100.3 million (after deducting underwriting discounts and other offering costs).

In March 2005, we sold 1,437,500 shares of our common stock in a follow-on offering (including the shares issued upon exercise of the underwriter's over-allotment option). The shares were issued at a price of $62.51 per share, resulting in net proceeds of approximately $89.1 million (after deducting underwriting discounts and other offering costs).

In July 2004, we redeemed all 1,543,500 outstanding shares of our 9.50% Series A cumulative redeemable preferred stock ("Series A preferred stock") at a redemption price of $25.00 per share plus $0.5409722 per share representing accumulated and unpaid dividends to the redemption date. In accordance with EITF Topic D-42, we recorded a charge of approximately $1,876,000 to net income available to common stockholders during the second quarter of 2004 for costs related to the redemption of the Series A preferred stock. We redeemed our Series A preferred stock with proceeds from the Series C preferred stock offering.

In January 2002, we completed a public offering of 2,300,000 shares of our 9.10% Series B cumulative redeemable preferred stock ("Series B preferred stock") (including the shares issued upon exercise of the underwriters' over-allotment option). The shares were issued at a price of $25.00 per share, resulting in aggregate proceeds of approximately $55.1 million (after deducting underwriters' discounts and other offering costs). The dividends on our Series B preferred stock are cumulative and accrue from the date of original issuance. We pay dividends quarterly in arrears at an annual rate of $2.275 per share. Our Series B preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not redeemable prior to January 22, 2007, except in order to preserve our status as a REIT. Investors in our Series B preferred stock generally have no voting rights. On or after January 22, 2007, we may, at our option, redeem our Series B preferred stock, in whole or in part, at any time with proceeds from the sale of equity securities at a redemption price of $25.00 per share, plus accrued and unpaid dividends.

In February 2007, we announced that we will redeem all 2,300,000 outstanding shares of our Series B preferred stock at a redemption price of $25.00 per share plus $0.4107639 per share representing accumulated and unpaid dividends through the redemption date of March 20, 2007.

In June 2004, we completed a public offering of 5,185,500 shares of our 8.375% Series C cumulative redeemable preferred stock ("Series C preferred stock") (including the shares issued upon exercise of the underwriters' over-allotment option). The shares were issued at a price of $25.00 per share, resulting in aggregate proceeds of approximately $124.0 million (after deducting underwriters' discounts and other offering costs). The proceeds were used to redeem our Series A preferred stock with the remaining portion used to pay down our unsecured line of credit. The dividends on our Series C preferred stock are cumulative and accrue from the date of original issuance. We pay dividends quarterly in arrears at an annual rate of $2.09375 per share. Our Series C preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not redeemable prior to June 29, 2009, except in order to preserve our status as a REIT. Investors in our Series C preferred stock generally have no voting rights. On or after June 29, 2009, we may, at our option, redeem our Series C preferred stock, in whole or in part, at any time for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends.

Our charter authorizes the issuance of up to 100,000,000 shares of preferred stock, of which 7,485,500 shares were issued and outstanding as of December 31, 2006. In addition, 200,000,000 shares of "excess stock" (as defined) are authorized, none of which were issued and outstanding at December 31, 2006.

In 1997, we adopted a stock option and incentive plan (the "Stock Plan") for the purpose of attracting and retaining the highest quality personnel, providing for additional incentives and promoting the success of the company by providing employees the opportunity to acquire common stock pursuant to (i) options to purchase common stock; and (ii) share awards. As of December 31, 2006, a total of 942,283 shares were reserved for the granting of future options and share awards under the Stock Plan.

Options under our plan have been granted at prices that are equal to the market value of the stock on the date of grant and expire ten years after the date of grant. We have not granted any stock options since 2002. The options outstanding under the Stock Plan expire at various dates through October 2012.

The fair values of the options issued under the Stock Plan were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2006, 2005 and 2004:

                                                                 Year Ended December 31,
                                                     --------------------------------------------
                                                         2006           2005            2004
                                                     ------------  ---------------  -------------

Risk-free interest rate                                     4.64%            4.34%          3.94%
Dividend yield                                              2.71%            3.19%          3.79%
Volatility factor of the expected market price             20.83%           21.14%         21.50%
Weighted average expected life of the options         5.0 years       5.2 years       6.7 years

A summary of the stock option activity under our Stock Plan and related information for the years ended December 31, 2006, 2005 and 2004 follows:

                                                2006                   2005                   2004
                                      ---------------------- ---------------------- -----------------------

                                                   Weighted               Weighted                Weighted
                                                   Average                Average                 Average
                                        Stock      Exercise    Stock      Exercise    Stock       Exercise
                                       Options      Price     Options      Price     Options       Price
                                      ----------  ---------- ----------  ---------- ----------   ----------
Outstanding at beginning of year        492,016  $    34.92    607,331  $    35.36    809,583  $     35.39
Granted                                      --          --         --          --         --           --
Exercised                              (153,336)      27.69   (115,315)      37.22   (200,252)       35.44
Forfeited                                    --          --         --          --     (2,000)       42.15
                                      ----------  ---------- ----------  ---------- ----------   ----------
Outstanding at end of year              338,680  $    38.20    492,016  $    34.92    607,331  $     35.36
                                      ==========  ========== ==========  ========== ==========   ==========

Exercisable at end of year              338,680  $    38.20    492,016  $    34.92    500,000  $     33.38
                                      ==========  ========== ==========  ========== ==========   ==========
Weighted average fair value of
options granted                                  $         -            $         -            $          -
                                                  ==========             ==========              ==========

The following table summarizes information about stock options outstanding at December 31, 2006:

               Options Outstanding and Exercisable
                ---------------------------------
                                       Weighted
                Weighted               Average
   Range of     Average   Number      Remaining
   Exercise     Exercise    of       Contractual
    Prices       Price    Options        Life
--------------- -------- ----------- ------------
$20.00 - $37.00  $27.21     116,310          1.4
$38.38 - $43.50  $40.95     123,466          4.8
$47.20 - $47.69  $47.69      98,904          5.5
                         ----------- ------------
$20.00-$47.69    $38.20     338,680          3.8
                         =========== ============

In addition, the Stock Plan permits us to issue share awards to our employees and non-employee directors. A share award is an award of common stock, which (i) may be fully vested upon issuance or (ii) may be subject to the risk of forfeiture under Section 83 of the Internal Revenue Code. Shares issued generally vest over a one to three year period from the date of issuance and the sale of the shares is restricted prior to the date of vesting. The unearned portion of these awards is amortized as stock compensation expense on a straight-line basis over the vesting period.

As of December 31, 2006 and 2005 there were 444,349 and 271,537 nonvested share awards outstanding, respectively. During 2006, we granted 286,569 shares of common stock, 105,782 of share awards vested and 7,975 of shares were forfeited. The weighted average grant-date fair value of share awards granted during 2006 was approximately $91.36 and the total fair value of share awards vested, based on the market price on the vesting date, was approximately $11.9 million. As of December 31, 2006, there was $24.3 million of unrecognized compensation related to nonvested share awards under the Stock Plan, which is expected to be recognized over a weighted average period of approximately 2 years.

During the year ended December 31, 2006, our non-cash transactions related to one transaction in connection with the acquisitions of seven properties located in the Eastern Massachusetts market and another transaction in connection with the acquisitions of one land parcel located in the San Francisco Bay market. During the year ended December 31, 2005, our non-cash transactions related to acquisitions of seven properties, in seven separate transactions, located in the San Francisco Bay, Suburban Washington D.C., Eastern Massachusetts, Seattle and Canada markets. The following table summarizes these transactions (in thousands):

                                                         2006           2005            2004
                                                     ------------  ---------------  -------------
Aggregate purchase price                            $    608,363  $        55,400  $     185,912
Minority interest                                         36,898               --             --
Notes payable                                            232,525           31,853        127,653
                                                     ------------  ---------------  -------------
Cash paid for the properties                        $    338,940  $        23,547  $      58,259
                                                     ============  ===============  =============

The following is a summary of operations and net assets of the properties included in discontinued operations presented in compliance with SFAS 144 (in thousands):

                                                                Year Ended December 31,
                                                     --------------------------------------------
                                                         2006           2005            2004
                                                     ------------  ---------------  -------------
Total revenue                                       $      2,402  $         6,073  $       4,998
Operating expenses                                           548            1,453          1,351
                                                     ------------  ---------------  -------------
Revenue less operating expenses                            1,854            4,620          3,647
Interest                                                      --               --             --
Depreciation                                                 467            1,423          1,176
                                                     ------------  ---------------  -------------
Income before gain/loss on sales of property               1,387            3,197          2,471
Gain/loss on sales of property                                59               36          1,627
                                                     ------------  ---------------  -------------
Income from discontinued operations, net            $      1,446  $         3,233  $       4,098
                                                     ============  ===============  =============

                                                               December 31,
                                                     -----------------------------
                                                         2006           2005
                                                     ------------  ---------------
Properties held for sale, net                       $      6,160  $            --
Other assets                                               1,156               --
                                                     ------------  ---------------
Total assets                                        $      7,316  $            --
                                                     ============  ===============
Total liabilities                                             --               --
                                                     ------------  ---------------
Net assets of discontinued operations               $      7,316  $            --
                                                     ============  ===============

Income from discontinued operations, net for 2006 includes the results of operations of one property that was designated as "held for sale" as of December 31, 2006, and three properties sold during 2006, Income from discontinued operations, net for 2005 reflects the results of operations of one property that was designated as "held

for sale" as of December 31, 2006, three properties sold during 2006 and one property sold during 2005. Income from discontinued operations, net for 2004 reflects the results of operations of one property that was designated as "held for sale" as of December 31, 2006, three properties sold during 2006, one property sold during 2005 and one property sold in 2004. See Note 2, Basis of Presentation and Summary of Significant Accounting Policies.

As of December 31, 2006, we had one property designated as "held for sale" in accordance with SFAS 144. During 2006, we sold one property located in the New Jersey/Suburban Philadelphia market and two properties located in the Suburban Washington D.C. market . The total sale price for these properties was approximately $41.8 million. In connection with this sale, we recorded a gain on sale of property of approximately $59,000. During 2005, we sold one property located in the Southeast market. The total sale price for the property was approximately $1.3 million. In connection with this sale, we recorded a gain on sale of property of approximately $36,000. During 2004, we sold one property located in the Suburban Washington D.C. market. The total sale price for the property was approximately $5.7 million. In connection with the sale, we recorded a gain on sale of property of approximately $1.6 million. Gains and losses on sales of these properties are included in the income statement in income from discontinued operations, net.

The following is a summary of consolidated financial information on a quarterly basis for 2006 and 2005:

                                                                            Quarter
                                                  ----------------------------------------------------------
                                                      First         Second          Third         Fourth
                                                  -------------  -------------  -------------  -------------
                                                          (In thousands, except per share amounts)
2006
----
Revenues                                         $      68,283  $      70,187  $      84,911  $      93,440

Net income available to common stockholders      $      12,733  $      13,139  $      14,942  $      16,512

Earnings per share:
       Basic                                     $        0.57  $        0.57  $        0.57  $        0.57
       Diluted                                   $        0.56  $        0.57  $        0.56  $        0.57

                                                                            Quarter
                                                  ----------------------------------------------------------
                                                      First         Second          Third         Fourth
                                                  -------------  -------------  -------------  -------------
                                                          (In thousands, except per share amounts)
2005
----
Revenues                                         $      54,764  $      56,987  $      61,735  $      64,652

Net income available to common stockholders      $      10,967  $      12,250  $      11,969  $      12,157

Earnings per share:
       Basic                                     $        0.56  $        0.59  $        0.57  $        0.55
       Diluted                                   $        0.55  $        0.58  $        0.56  $        0.54

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 the Company's common stock and a conversion premium of 20% based on the last reported sale price of $98.30 per share of the Company's 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 the Company's 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 the Company's 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 convertible upon the occurrence of specified corporate transactions; (4) the Notes will be convertible if the Company has called the Notes for redemption; and (5) the Notes will 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, the Company will not have the right to redeem the Notes, except to preserve its 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 the Company 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.

Alexandria Real Estate Equities, Inc. and Subsidiaries
Schedule III
Consolidated Financial Statement Schedule of Rental Properties and Accumulated Depreciation
December 31, 2006
(Dollars in thousands)

                                                  Initial Costs           Costs           Total Costs
                                  Square     -----------------------   Capitalized   ----------------------
                                  Footage              Buildings and  Subsequent to            Buildings and              Accumulated                            Year Built/
         Property Name          (unaudited)    Land    Improvements    Acquisition     Land    Improvements  Total (27)   Depreciation (Encumbrances (28)         Renovated
         -------------          -----------  --------  -------------  -------------  --------  ------------  -----------  ------------  ----------------     -------------------
California - Los Angeles Metro      31,343  $  2,172  $         812  $      10,627  $  2,172  $     11,439  $    13,611  $     (2,181) $                     1940's/2002
California - Los Angeles Metro      29,660       928          4,280            118       928         4,398        5,326            (8)                       early 1980's
California - San Diego             107,709     1,321          5,960          7,407     1,321        13,367       14,688        (3,210)                       1971/2003
California - San Diego              74,557     1,013              -         16,802     1,013        16,802       17,815        (5,613)                       2000
California - San Diego              44,733       620          9,531          9,667       620        19,198       19,818          (951)                       1962/2005
California - San Diego              86,962     2,663         10,649          5,223     2,663        15,872       18,535        (5,799)                       1986/1996
California - San Diego              76,084     2,651         18,046          1,460     2,651        19,506       22,157        (7,210)           36,655  (2) 1986/2000
California - San Diego              43,600     1,227          9,554            330     1,227         9,884       11,111        (3,624)                   (2) 1991
California - San Diego              18,173       463          1,840          2,787       463         4,627        5,090        (1,238)                   (5) 1983/1998
California - San Diego              67,050     2,548         13,638            263     2,548        13,901       16,449        (4,629)           31,600  (3) 1989
California - San Diego              64,000     2,248         10,952         14,261     2,248        25,213       27,461          (430)                       1998/2006
California - San Diego              34,723     1,122              -          3,881     1,122         3,881        5,003          (659)                   (2) 2000
California - San Diego              55,200     1,683              -          5,647     1,683         5,647        7,330        (1,276)                   (2) 1999
California - San Diego              29,333       733          2,273          1,878       733         4,151        4,884        (1,879)                  (19) 1997
California - San Diego              17,603       444          1,699          1,842       444         3,541        3,985        (1,184)                       late 1970's/1999
California - San Diego              15,410       651          1,375          1,922       651         3,297        3,948        (1,490)                       1978/1999
California - San Diego              45,030       275          8,621          3,666       275        12,287       12,562        (2,072)           88,581  (4) 1987/2003
California - San Diego              51,768       320         10,070          2,965       320        13,035       13,355        (2,765)                   (4) 1987/2000
California - San Diego              41,780       258          8,170          8,725       258        16,895       17,153        (3,133)                   (4) 1987/2000
California - San Diego              17,590       506          2,581          2,352       506         4,933        5,439          (190)           22,915  (5) 1981
California - San Diego              30,147       754          4,288            619       754         4,907        5,661          (555)                   (5) 1981/1998
California - San Diego              22,577       564          3,224             43       564         3,267        3,831          (582)                   (5) 1981/1995
California - San Diego              17,433       436          2,480            431       436         2,911        3,347          (418)                   (5) 1981/1999
California - San Diego              24,208       605          3,459             42       605         3,501        4,106          (625)                   (5) 1981/1995
California - San Diego              21,940       515          1,566          2,502       515         4,068        4,583          (875)                       early 1980's/2001
California - San Diego              71,510     4,329         16,165         10,497     4,329        26,662       30,991        (1,207)           10,301      1986/1998
California - San Diego              56,698     1,984         10,397            238     1,984        10,635       12,619          (783)                   (4) 1987/2001
California - San Diego              87,140    10,124          9,448          4,233    10,124        13,681       23,805          (122)           21,883      1980
California - San Diego              87,298     3,492         18,285            212     3,492        18,497       21,989          (959)           15,180  (6) 1999/2000
California - San Francisco Bay      61,015     1,506          5,357          3,691     1,506         9,048       10,554        (3,385)                   (3) 1983/1999
California - San Francisco Bay      27,745       775          1,917          1,632       775         3,549        4,324        (1,225)                   (3) 1984/2000
California - San Francisco Bay      47,777     1,200          3,880            447     1,200         4,327        5,527        (1,210)                   (3) 1986/1994
California - San Francisco Bay      68,711     1,800          9,731            755     1,800        10,486       12,286        (2,600)            1,104      1985/1994
California - San Francisco Bay     153,837     4,751         12,612         14,476     4,751        27,088       31,839        (5,703)                       1962/2002
California - San Francisco Bay      32,074         -          6,628          8,385         -        15,013       15,013        (4,419)                       1968/2000
California - San Francisco Bay      98,964         -         21,323         20,954         -        42,277       42,277        (6,971)                       1980/2003
California - San Francisco Bay      53,980     3,519              -         12,941     3,519        12,941       16,460        (4,050)           32,070  (7) 2001
California - San Francisco Bay      53,980     3,519              -          7,671     3,519         7,671       11,190        (1,757)                   (7) 2001
California - San Francisco Bay     110,428     7,730         24,397             24     7,730        24,421       32,151        (2,914)          145,391  (8) 2000
California - San Francisco Bay      59,816     4,187         14,020             25     4,187        14,045       18,232        (2,551)                   (8) 2002
California - San Francisco Bay     126,971     8,250         33,846          4,287     8,250        38,133       46,383          (370)                   (8) 2006
California - San Francisco Bay      67,482     1,349          9,915            372     1,349        10,287       11,636          (780)                       1984/2001
California - San Francisco Bay      91,644         -         19,154          1,150         -        20,304       20,304        (1,511)                   (4) 1962/2002
California - San Francisco Bay     140,143     7,038         39,704          3,337     7,038        43,041       50,079        (2,412)                   (8) 2001
California - San Francisco Bay      60,000     4,800          6,693          4,412     4,800        11,105       15,905          (177)            6,543  (9) 1982
California - San Francisco Bay     116,284    28,290              -             17    28,290            17       28,307             -                        1985
California - San Francisco Bay      58,400     3,568          5,255            572     3,568         5,827        9,395             -             8,861      1982/1999
California - San Francisco Bay      82,712     6,617          7,091            667     6,617         7,758       14,375          (122)           13,970      early 1980's
California - San Francisco Bay      70,328     9,799              -             24     9,799            24        9,823             -                        1940's/1990's
California - San Francisco Bay     150,960    25,259         48,796              -    25,259        48,796       74,055          (110)                       1999
Eastern Massachusetts               24,940         -          6,247            399         -         6,646        6,646        (1,505)                  (20) 1880/1991
Eastern Massachusetts               24,867       622          3,053             70       622         3,123        3,745          (421)                       1965/1990
Eastern Massachusetts               40,200       960          3,032          8,196       960        11,228       12,188        (1,152)                       1975
Eastern Massachusetts              115,179     2,734         14,567          4,545     2,734        19,112       21,846        (4,025)                       1991
Eastern Massachusetts               92,711     2,352         14,173          2,512     2,352        16,685       19,037        (3,551)           17,877 (19) 1993
Eastern Massachusetts               92,423       651              -         15,860       651        15,860       16,511        (7,128)                       2000
Eastern Massachusetts               92,500     3,360          7,316         14,719     3,360        22,035       25,395        (6,672)                       1978/2001
Eastern Massachusetts               59,000     1,475          7,194         11,426     1,475        18,620       20,095        (3,992)           36,486 (20) 1972/2002
Eastern Massachusetts               51,000     6,507              -         21,759     6,507        21,759       28,266        (4,194)                       2002
Eastern Massachusetts               47,497     6,058              -         21,345     6,058        21,345       27,403        (2,414)                       2002
Eastern Massachusetts               96,150     6,413          5,457         30,885     6,413        36,342       42,755        (2,589)                       1980/2003
Eastern Massachusetts               46,700     2,567          4,522          9,763     2,567        14,285       16,852        (1,008)                   (4) 1972
Eastern Massachusetts               78,916     1,578         10,195            901     1,578        11,096       12,674          (684)            9,155 (21) 1929/2003
Eastern Massachusetts               11,774       228          1,501            301       228         1,802        2,030          (109)                  (21) 1940/2003
Eastern Massachusetts               48,640       876          5,033             17       876         5,050        5,926          (273)                       1975/1997
Eastern Massachusetts               60,759     1,220         22,375             44     1,220        22,419       23,639        (1,027)                       1977
Eastern Massachusetts               82,330     1,466          9,046          3,931     1,466        12,977       14,443          (395)            7,400      1982/1997
Eastern Massachusetts               26,828     1,341          8,448             50     1,341         8,498        9,839          (353)            5,718 (22) 1975/2000
Eastern Massachusetts              128,325    12,833         27,333             55    12,833        27,388       40,221        (1,141)                       1999
Eastern Massachusetts               30,000       750          3,312             37       750         3,349        4,099          (139)            2,650 (23) 1972/2001
Eastern Massachusetts               45,820     2,775          7,679          5,071     2,775        12,750       15,525          (199)                       1907/1982
Eastern Massachusetts               36,000     1,440          5,238             15     1,440         5,253        6,693          (197)                       1985/1996
Eastern Massachusetts               38,000       893          4,000             81       893         4,081        4,974          (127)            1,829 (24) 1975/2004
Eastern Massachusetts               26,589     1,628          3,554          3,369     1,628         6,923        8,551             -                        1920
Eastern Massachusetts               54,391     1,278          7,057             22     1,278         7,079        8,357          (206)                       1973/2000
Eastern Massachusetts              131,547    15,774         54,481         12,406    15,774        66,887       82,661        (1,366)                       2001
Eastern Massachusetts              113,045     2,261          7,099          4,014     2,261        11,113       13,374          (134)                       1970/2001
Eastern Massachusetts               97,566     2,342          9,892             30     2,342         9,922       12,264          (234)                       2006
Eastern Massachusetts            1,136,734         -        619,658          2,638         -       622,296      622,296        (5,788)          220,639 (25) 2006
Eastern Massachusetts               27,960     2,209          9,059              -     2,209         9,059       11,268           (70)                       1920's/1998
Eastern Massachusetts              184,577    58,697         38,331              -    58,697        38,331       97,028          (210)                       1920's/2006
Eastern Massachusetts              132,135    36,852          5,377              -    36,852         5,377       42,229             -                        1900/1990's
International - Canada              68,000     2,930         17,735          1,050     2,930        18,785       21,715          (859)                       2004
International - Canada             162,362     6,995         20,651            535     6,995        21,186       28,181          (574)                       1999
International - Canada              66,000     2,281          8,612            198     2,281         8,810       11,091          (222)            6,081 (26) 1969/2003
New Jersey/Suburban Philadelphia    42,782       654          4,234            738       654         4,972        5,626        (1,128)                  (20) 1989
New Jersey/Suburban Philadelphia    40,000       600          3,110          3,542       600         6,652        7,252        (3,340)                       1983/1998
New Jersey/Suburban Philadelphia    41,015       621          4,258             28       621         4,286        4,907          (259)                       1968
New Jersey/Suburban Philadelphia   111,451     1,289         12,039             70     1,289        12,109       13,398          (780)                       1997/2004
New Jersey/Suburban Philadelphia    50,000     1,625         19,715             98     1,625        19,813       21,438          (241)                       1975/1996/2002
New Jersey/Suburban Philadelphia    37,000       740          4,506          1,266       740         5,772        6,512        (1,124)                       1982/1994
New Jersey/Suburban Philadelphia    78,501     1,840          2,298         14,565     1,840        16,863       18,703        (4,881)                  (20) late 1960's/1999
New Jersey/Suburban Philadelphia    42,600     1,161          1,438          4,423     1,161         5,861        7,022        (2,389)                       1984/1999
Southeast                           20,580       214          3,802              5       214         3,807        4,021          (778)                       1976/1993
Southeast                           65,114       337          5,795          1,325       337         7,120        7,457        (1,685)                       1986
Southeast                           59,397       288          5,789          5,840       288        11,629       11,917        (4,870)                       1985
Southeast                           60,519       289          5,899          7,477       289        13,376       13,665        (2,472)                       1985
Southeast                           32,120       161          3,410            261       161         3,671        3,832          (828)                       1981
Southeast                           82,206         -            376         11,842         -        12,218       12,218        (2,243)                       2000
Southeast                           38,861       339          3,383          7,168       339        10,551       10,890        (1,919)                       1995/2003
Southeast                           46,557       363          9,101          8,452       363        17,553       17,916          (798)                       2000
Southeast                           48,236       364          8,734              6       364         8,740        9,104          (235)                       2005
Southeast                           81,580       713         12,827            442       713        13,269       13,982          (764)            8,326      1995
Southeast                           77,395       785         11,546              -       785        11,546       12,331           (27)                       2002
Southeast                           45,841     2,916          5,314          1,349     2,916         6,663        9,579             -                        2003
Suburban Washington D.C.           105,000     1,733          9,611          3,482     1,733        13,093       14,826        (3,869)                       1967/2000
Suburban Washington D.C.            47,558       871          5,362          3,095       871         8,457        9,328        (3,312)                       1989/1999
Suburban Washington D.C.            63,154     1,129          6,940          1,012     1,129         7,952        9,081        (1,799)                       1987
Suburban Washington D.C.           138,938     3,281         14,416            207     3,281        14,623       17,904        (3,879)           23,438 (13) 1989/1997
Suburban Washington D.C.            44,500       775          4,122            350       775         4,472        5,247        (1,101)                  (14) 1981/1995
Suburban Washington D.C.           131,415     2,800         11,533         20,962     2,800        32,495       35,295        (3,155)                       1994/2005
Suburban Washington D.C.            49,225     1,267          3,031          5,168     1,267         8,199        9,466        (5,317)                  (13) 1982/1997
Suburban Washington D.C.            44,464       900          2,732          1,592       900         4,324        5,224        (1,891)                  (15) 1989
Suburban Washington D.C.            72,170     1,514         21,946          3,627     1,514        25,573       27,087          (682)                       2006
Suburban Washington D.C.            45,989       748          3,609          1,599       748         5,208        5,956        (1,491)                  (14) 1981/2003
Suburban Washington D.C.           191,884         -         13,679          1,669         -        15,348       15,348        (3,786)           28,866 (14) 1990/2003
Suburban Washington D.C.            75,500     1,510          5,210          1,849     1,510         7,059        8,569        (2,409)                       1983/1997
Suburban Washington D.C.           143,585     2,463            493         23,577     2,463        24,070       26,533        (7,427)           26,903 (15) 2000
Suburban Washington D.C.            25,175       376          3,192          2,199       376         5,391        5,767        (1,043)                       1974/2000
Suburban Washington D.C.            53,464       971          5,141          6,936       971        12,077       13,048        (2,555)                  (16) 1980/2001
Suburban Washington D.C.            54,000       947          5,092          5,002       947        10,094       11,041        (1,322)                  (16) 1980/2003
Suburban Washington D.C.            54,874       970          5,138            919       970         6,057        7,027          (999)            9,319 (16) 1981/2003
Suburban Washington D.C.            59,838       983          6,638            105       983         6,743        7,726        (1,300)                  (15) 1989/1992
Suburban Washington D.C.            58,632     1,466          5,708          4,182     1,466         9,890       11,356        (1,408)                       1972/2003
Suburban Washington D.C.            92,449     2,773         23,906          3,856     2,773        27,762       30,535        (1,028)                       1999
Suburban Washington D.C.            49,185     1,476          7,267             37     1,476         7,304        8,780          (426)                       1963/1979
Suburban Washington D.C.            37,861     2,576          5,661             55     2,576         5,716        8,292          (333)                       1999
Suburban Washington D.C.           343,100    10,052        106,240         17,895    10,052       124,135      134,187        (7,014)           76,794 (17) 1996/1998/2002
Suburban Washington D.C.            54,906     1,647         13,258          3,586     1,647        16,844       18,491          (799)                       1970/1992
Suburban Washington D.C.           180,650     5,527         26,365          3,649     5,527        30,014       35,541        (1,587)                       1982
Suburban Washington D.C.            26,127       784          4,705             85       784         4,790        5,574          (219)            3,323 (18) 2000/2003
Suburban Washington D.C.            83,541     2,924         19,664            433     2,924        20,097       23,021          (623)                       1972/1983
Suburban Washington D.C.           248,186     4,800         27,639            390     4,800        28,029       32,829        (6,884)                  (11) 1992
Washington - Seattle               164,345     5,654         22,916         18,191     5,654        41,107       46,761       (11,247)           14,541 (10) 1975/1997
Washington - Seattle                70,647     2,119         11,275          4,781     2,119        16,056       18,175        (5,454)                       1980/2000
Washington - Seattle                47,746     1,432          7,497          3,323     1,432        10,820       12,252        (3,145)           32,880 (11) 1929/2000
Washington - Seattle               106,003     4,240         31,232             25     4,240        31,257       35,497        (3,320)                       1997
Washington - Seattle                97,366     1,570         15,917         14,929     1,570        30,846       32,416        (2,788)                       1997
Washington - Seattle               165,493     6,940              -         60,427     6,940        60,427       67,367        (2,894)                       2004
Washington - Seattle                32,279     2,156          1,645          5,933     2,156         7,578        9,734          (242)                       1962
Washington - Seattle                 2,896     1,700            344            103     1,700           447        2,147           (22)                       1951
Washington - Seattle               121,790     8,525         20,064            197     8,525        20,261       28,786        (1,011)           28,500      1962/2000
Washington - Seattle                27,633     2,212          6,788            347     2,212         7,135        9,347          (185)            3,928 (12) 1998
Washington - Seattle                24,000     5,134              -             19     5,134            19        5,153             -                        1927
Washington - Seattle                19,053     5,114              -            319     5,114           319        5,433            (1)                       1962/2000
                                -----------  --------  -------------  -------------  --------  ------------  -----------  ------------  ----------------
                                11,232,351  $482,310  $   2,044,459  $     677,732  $482,310  $  2,722,191  $ 3,204,501      (279,620) $        999,707
                                ===========  ========  =============  =============  ========  ============  ===========  ============  ================

____________________

1. The depreciable life for buildings and improvements ranges from 30 to 40 years, 20 for land improvements, and the term of the respective lease for tenant improvements.
2. Loan of $36,655 secured by 4 properties identified by this reference.
3. Loan of $31,600 secured by 4 properties identified by this reference.
4. Loan of $88,581 secured by 6 properties identified by this reference.
5. Loan of $22,915 secured by 6 properties identified by this reference.
6. The balance shown includes an unamortized premium of $1,212.
7. Loan of $32,070 secured by 2 properties identified by this reference.
8. Loan of $145,391 secured by 4 properties identified by this reference.
9. The balance shown includes an unamortized premium of $44.
10. Loan of $14,541 secured by 1 property identified by this reference and a property undergoing development.
11. Loan of $32,880 secured by 2 properties identified by this reference.
12. The balance shown includes an unamortized premium of $260.
13. Loan of $23,438 secured by 2 properties identified by this reference.
14. Loan of $28,866 secured by 3 properties identified by this reference.
15. Loan of $26,903 secured by 3 properties identified by this reference.
16. Loan of $9,319 secured by 3 properties identified by this reference.
17. The balance shown includes an unamortized premium of $794.
18. The balance shown includes an unamortized premium of $195.
19. Loan of $17,877 secured by 2 properties identified by this reference.
20. Loan of $36,486 secured by 4 properties identified by this reference.
21. Loan of $9,155 secured by 2 properties identified by this reference.
22. The balance shown includes an unamortized premium of $343.
23. The balance shown includes an unamortized premium of $241.
24. The balance shown includes an unamortized premium of $90.
25. The balance shown includes an unamortized discount of $4,359.
26. The balance shown includes an unamortized premium of $145.
27. The aggregate cost of real estate for federal income tax purposes is not materially different from the cost basis under GAAP (unaudited).
28. Excludes $175,200 of encumbrances primarily related to 11 land parcels.

A summary of activity of consolidated rental properties and accumulated depreciation is as follows (in thousands):

                                                                  Rental Properties
                                                              Year Ended December 31,
                                                     ------------------------------------------
                                                         2006          2005           2004
                                                     ------------  -------------  -------------
Balance at beginning of period                      $  2,009,708  $   1,603,912  $   1,123,857
Purchase of rental properties                          1,030,439        272,532        383,350
Sale of properties                                       (41,913)        (1,237)        (4,084)
Additions                                                 76,717         94,210         70,248
Transfer of costs from properties
   under development and land held for development       129,550         40,291         30,541
                                                     ------------  -------------  -------------
Balance at end of period                            $  3,204,501  $   2,009,708  $   1,603,912
                                                     ============  =============  =============