Business Strategy

Our business strategy is to own, acquire, develop, lease and manage laboratory and office space for lease to life science tenants in our target markets. This highly focused business strategy, coupled with our management expertise, provides significant internal and external growth opportunities.

Internal Growth

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

• Maximize occupancy. We believe our access to cost-effective capital enables us to finance tenant improvements and lease our available space to high quality tenants. This should maximize occupancy and drive revenue growth.
  
  

• Contractual rental rate increases. Our leases generally include annual rent escalations, which provide us with predictable and consistent earnings growth.
  
  

• 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 space conversions. We continually evaluate opportunities to convert existing office and industrial space into laboratory space.
  
  

• Tenant financed improvements. Our tenants generally contribute tenant improvements necessary to conform a property to their specific needs.

External Growth

Our acquisition focus is to buy properties leased to high quality life science tenants at attractive cash-on-cash yields with potential upside through lease-up, redevelopment or additional development. Our acquisition strategy is a real estate-based formulation, combining extensive tenant analysis and risk-based underwriting. Our acquisition strategy includes:

• Real Estate Underwriting. Our primary consideration is the location of a property in relation to academic and research institutions and other demand generators in our target markets, a critical factor in determining long-term value. In addition, we assess the property’s suitability for life science tenants and the amount of generic laboratory space in order to maximize the flexibility to attract new or replacement tenants. We also focus on the building improvements financed by the tenant, which provide significant downside protection to our investment while increasing tenant retention and providing future rental increases. Next, we consider the property’s basic design and construction and its ability to accommodate life science tenants. Features we examine include, among others, floor-to-ceiling clear heights, floor rigidity and load bearing capacity, and electrical, plumbing and HVAC systems. We generally seek to acquire properties with generic laboratory space (space that we can easily convert to support alternative uses within the life science industry). We believe we can more easily re-lease such space to future tenants or convert it to multi-tenant use.
  
  

• 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 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 provide 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.