Our Business

U.S. government agencies, research institutions and universities have been at the forefront of major discoveries in medicine and science for over 50 years, spawning a vibrant U.S. life science industry that has become the world leader in carrying these breakthroughs forward into approved, marketable products. These organizations' business models are predicated on advancing their research through the clinical trial process and toward commercialization, making our laboratory facilities mission critical to their success.

Powerful, long-term market drivers fuel the growth of the life science industry. Positive demographic trends, such as an aging population and longer life expectancies, combined with rising health care expenditures and greater demand for a higher quality of life, are the driving forces behind the push for more efficient and effective treatments. These demands open the door to capital investment in organizations and companies developing the next generation of life science products and solutions, and drive the need for state-of-the-art laboratory space in the seven core U.S. life science markets.

Starting with the positive long-term demographic and economic trends, we believe the life science industry's demand for high quality space will continue and create new opportunities for BioMed Realty.

Life science organizations require excellent facilities with a mix of laboratory, office and manufacturing space to support their research and development efforts. Converting traditional office buildings into laboratory space is difficult, if not cost prohibitive, because of the need for greater floor-to-ceiling clear heights to accommodate unique HVAC and plumbing requirements, and greater load-bearing floors to hold refrigerators and other heavy laboratory equipment. As a result, the traditional commercial real estate community has historically underserved life science tenants.

We have unparalleled experience and skill in developing life science properties with state-of-the-art laboratory and R&D space, traditional office space, and large scale, controlled-environment manufacturing space in our markets.

Our internal growth strategy is designed to maximize distributions to our stockholders by capitalizing on BioMed Realty's significant management expertise through the following means:

• Maximized occupancy. Our access to cost-effective capital enables BioMed to finance tenant improvements and lease our available office and laboratory space to high quality tenants in order to maximize occupancy and drive revenue growth.
• Income stability and growth. Our revenue is primarily generated through long-term, triple-net leases that typically include annual rent escalations that provide tremendous visibility and stability in our future income and cash flows.
• Tenant monitoring. We closely monitor changes in our existing tenants' financial position, prospects and creditworthiness in order to identify and address opportunities to renew, extend or modify existing leases and find additional expansion opportunities.
• Opportunistic laboratory biotech space conversions. We continually evaluate opportunities to convert existing office and industrial space into laboratory space that is adaptable to meet the needs of a wide range of life science companies.
• Tenant-financed improvements. Our tenants generally invest significant funds to further improve their facilities, which further enhance the property for themselves and future tenants.

We focus on acquiring properties leased to high quality life science tenants at attractive yields, with additional value creation realized through lease-up, redevelopment or additional development. Our acquisition strategy is a real estate based formula, combining extensive tenant analysis and risk-based underwriting. Our acquisition strategy includes:

• Real Estate Underwriting. We conduct extensive analyses when evaluating properties for potential acquisition, including taking into consideration the following factors:
  • the location of a property in relation to academic and research institutions and other demand generators in our target markets
  • the property's suitability for life science tenants and the level of generic laboratory space, which is a determinant of the flexibility of the property to attract new or replacement tenants or be convertible to multi-tenant use
  • the type and amount of building improvements financed by the tenant, which provide significant protection of our investment while increasing tenant retention and providing future rental increases
  • the property's basic design and construction and ability to accommodate life science tenants, including key features such as floor-to-ceiling clear heights; floor rigidity and load-bearing capacity; and electrical, plumbing and HVAC systems
• Tenant Credit Analysis. Our tenant credit analysis considers three key elements in evaluating prospective tenants: (1) financial condition, (2) management team and (3) scientific focus. We perform a thorough review of the prospective tenant's financial statements, considering the current liquidity and cash resources as well as the tenant's prospects for raising additional capital. We also meet with the prospective tenant's senior management team in order to evaluate the quality of the management team, their scientific focus and their ability to raise capital.
• Lease Structuring. After careful consideration of the subject property and the prospective tenant, we analyze our leases to ensure the appropriate economic return based on our risk assessment. Depending on the business plan for each individual property, our leases generally range from five to 15 years, with extension options, and include a fixed rental rate with scheduled annual escalations. The leases typically are triple-net. In addition, our tenants typically are responsible for capital improvements necessary to maintain the property in its original condition.

Since inception, the hallmark of BioMed Realty's strategy has been to proactively manage our balance sheet and liquidity position to position ourselves well to take advantage of future opportunities.

• Match-Funding Investments with Permanent Capital. We manage our balance sheet to ensure that the company is properly capitalized for the long-term.
• Investment Grade Corporate Credit Ratings. On April 13, 2010, BioMed Realty received investment grade corporate credit ratings from Standard & Poor's Ratings Services and Moody's Investors Service. BioMed Realty views these ratings as further validation of our capital strategy and recognition of our consistent ability to properly manage the company's balance sheet and ensure ample liquidity to execute our business plan.
• Strong Liquidity Position. The enviable liquidity position derived from our consistent focus on disciplined capital management has provided us the opportunity to execute on attractive investment opportunities and positions us well to take advantage of additional opportunities as they arise.