Basis of Presentation and Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 |
Accounting Policies [Abstract] | |
Basis of Presentation and Summary of Significant Accounting Policies | Basis of Presentation and Summary of Significant Accounting Policies |
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The accompanying interim financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments and eliminations, consisting of normal recurring adjustments necessary for a fair presentation of the financial statements for these interim periods have been recorded. These financial statements should be read in conjunction with the audited consolidated financial statements and notes therein included in the Company's annual report on Form 10-K for the year ended December 31, 2014. |
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Reclassifications |
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Certain reclassifications have been made to prior period amounts to conform to current period presentation. Such reclassifications have no effect on net income as previously reported. |
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Principles of Consolidation |
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The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, partnerships and limited liability companies it controls, and variable interest entities (“VIEs”) for which the Company has determined itself to be the primary beneficiary. All material intercompany transactions and balances have been eliminated. The Company consolidates entities the Company controls and records a noncontrolling interest for the portions not owned by the Company. Control is determined, where applicable, by the sufficiency of equity invested and the rights of the equity holders, and by the ownership of a majority of the voting interests, with consideration given to the existence of approval or veto rights granted to the minority stockholder. If the minority stockholder holds substantive participating rights, it overcomes the presumption of control by the majority voting interest holder. In contrast, if the minority stockholder simply holds protective rights (such as consent rights over certain actions), it does not overcome the presumption of control by the majority voting interest holder. |
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Assets and liabilities of subsidiaries outside the United States with non-U.S. dollar functional currencies are translated into U.S. dollars using exchange rates as of the balance sheet dates. Income and expenses are translated using the average exchange rates for the reporting period. Foreign currency translation adjustments are recorded as a component of other comprehensive income. For the three months ended March 31, 2015 and 2014, total revenues from properties outside the United States were $4.2 million and $4.8 million, respectively, which represented 2.4% and 2.8% of the Company's total revenues during the respective periods. The Company’s net investments in properties outside the United States were $203.7 million and $200.2 million at March 31, 2015 and December 31, 2014, respectively. |
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Investments in Partnerships and Limited Liability Companies |
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The Company has determined that it is the primary beneficiary in six VIEs (excluding certain VIEs associated with tax credits discussed below), consisting of single-tenant properties in which the tenant has a purchase option, which are consolidated and reflected in the accompanying consolidated financial statements. Selected financial data of the VIEs at March 31, 2015 and December 31, 2014 consist of the following (in thousands): |
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| March 31, | | December 31, | | | | |
2015 | 2014 | | | | |
Investment in real estate, net | $ | 430,343 | | | $ | 433,842 | | | | | |
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Total assets | 491,610 | | | 493,066 | | | | | |
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Total debt | 188,780 | | | 189,848 | | | | | |
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Total liabilities | 202,592 | | | 203,529 | | | | | |
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Historic Tax Credits and New Market Tax Credits |
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The Company is a party to certain contractual arrangements with tax credit investors ("TCIs") that were established to enable the TCIs to receive benefits of historic tax credits ("HTCs") and/or new market tax credits ("NMTCs") for certain properties owned by the Company. At March 31, 2015 and December 31, 2014, the Company owned ten properties that had syndicated HTCs or NMTCs, or both, to TCIs. |
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Capital contributions are made by TCIs into special purpose entities that ultimately invest these funds in the entity that owns the subject property that generates the tax credits. The TCIs are allocated substantially all of the tax credits and hold only a noncontrolling interest in the economic risk and rewards of the special purpose entities. HTCs are delivered to the TCI upon substantial completion of the project. NMTCs are allowed for up to 39% of a qualified investment and are delivered to the TCI after the investment has been funded and spent on a qualified business. HTCs are subject to 20% recapture per year beginning one year after the completion of the historic rehabilitation of the subject property. NMTCs are subject to 100% recapture until the end of the seventh year following the qualifying investment. The Company has provided the TCIs with certain guarantees which protect the TCIs from loss should a tax credit recapture event occur. The contractual arrangements with the TCIs include a put/call provision whereby the Company may be obligated or entitled to repurchase the ownership interest of the TCIs in the special purpose entities at the end of the tax credit recapture period. The Company anticipates that either the TCIs will exercise their put rights or the Company will exercise its call rights; however, the Company believes that the put rights are more likely to be exercised. |
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The portion of the TCI’s capital contribution that is attributed to the put is recorded at fair-value at inception and is accreted to the expected put price as interest expense in the consolidated statements of income. At each of March 31, 2015 and December 31, 2014, approximately $5.2 million of put liabilities were included in other liabilities in the consolidated balance sheets. The remaining balance of the TCI’s capital contribution is initially recorded in other liabilities in the consolidated balance sheets and is reclassified, upon delivery of the tax credit to the TCI, as a reduction in the carrying value of the subject property, net of allocated expenses. During the three months ended March 31, 2014, $15.5 million of tax credits, net of costs and estimated put payments, were contributed by TCIs and were recorded as other liabilities in the consolidated balance sheets. During the three months ended March 31, 2014, $12.8 million of tax credits had been delivered to the TCIs and were reclassified as a reduction of the carrying value of the subject property. Direct and incremental costs incurred in structuring the transaction, consisting of third-party legal, accounting and other professional fees, are deferred and will be recognized as an increase in the cost basis of the subject property upon the recognition of the related tax credit as discussed above. |
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At March 31, 2015 and December 31, 2014, the Company determined that the special purpose entity owning one property under development is a VIE, since there is insufficient capital to finance the remaining development activities without further subordinated financial support. The Company has determined it is the primary beneficiary of this VIE, because it has the authority to direct the activities which most significantly impact its economic performance. Selected financial data of the VIE at March 31, 2015 and December 31, 2014 consisted of the following (in thousands): |
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| March 31, | December 31, | | | | | |
2015 | 2014 | | | | | |
Investment in real estate, net | $ | 5,764 | | $ | 2,507 | | | | | | |
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Total assets | 22,720 | | 24,478 | | | | | | |
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Total liabilities | 6,679 | | 7,467 | | | | | | |
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Investments in Real Estate, Net |
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Investments in real estate, net consisted of the following (in thousands): |
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| March 31, | | December 31, | | | | |
2015 | 2014 | | | | |
Land | $ | 643,041 | | | $ | 704,958 | | | | | |
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Land under development | 225,846 | | | 151,242 | | | | | |
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Buildings and improvements | 4,909,684 | | | 4,877,135 | | | | | |
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Construction in progress | 738,603 | | | 629,679 | | | | | |
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| 6,517,174 | | | 6,363,014 | | | | | |
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Accumulated depreciation | (999,545 | ) | | (946,439 | ) | | | | |
| $ | 5,517,629 | | | $ | 5,416,575 | | | | | |
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Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed |
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The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the long-lived asset’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a long-lived asset, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair-value of the property. The Company is required to make subjective assessments as to whether there are impairments in the values of its investments in long-lived assets. These assessments have a direct impact on the Company’s net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Although the Company’s strategy is to hold its properties over the long-term, if the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized to reduce the property to the lower of the carrying amount or fair-value, and such loss could be material. As of and for the three months ended March 31, 2015, no assets have been identified as impaired and no such impairment losses have been recognized. |
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Deferred Leasing Costs, Net |
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Leasing commissions and other direct costs associated with obtaining new or renewal leases are recorded at cost and amortized on a straight-line basis over the terms of the respective leases, with remaining terms ranging from less than one year to approximately 20 years as of March 31, 2015. Deferred leasing costs also include the net carrying value of acquired in-place leases and acquired management agreements. |
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Deferred leasing costs, net at March 31, 2015 consisted of the following (in thousands): |
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| Balance at | | Accumulated | | |
| March 31, 2015 | | Amortization | | Net |
Acquired in-place leases | $ | 420,032 | | | $ | (280,148 | ) | | $ | 139,884 | |
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Acquired management agreements | 25,801 | | | (23,097 | ) | | 2,704 | |
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Deferred leasing and other direct costs | 119,250 | | | (42,289 | ) | | 76,961 | |
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| $ | 565,083 | | | $ | (345,534 | ) | | $ | 219,549 | |
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Deferred leasing costs, net at December 31, 2014 consisted of the following (in thousands): |
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| Balance at | | Accumulated | | |
| December 31, 2014 | | Amortization | | Net |
Acquired in-place leases | $ | 415,389 | | | $ | (271,782 | ) | | $ | 143,607 | |
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Acquired management agreements | 25,801 | | | (22,328 | ) | | 3,473 | |
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Deferred leasing and other direct costs | 111,290 | | | (38,657 | ) | | 72,633 | |
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| $ | 552,480 | | | $ | (332,767 | ) | | $ | 219,713 | |
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Investments |
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Investments in equity securities, which are included in other assets on the accompanying consolidated balance sheets, consisted of the following (in thousands): |
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| March 31, | | December 31, | | | | |
2015 | 2014 | | | | |
Available-for-sale securities, historical cost | $ | 14,309 | | | $ | 10,280 | | | | | |
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Unrealized gain, net | 71,662 | | | 48,341 | | | | | |
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Available-for-sale securities, fair-value (1) | 85,971 | | | 58,621 | | | | | |
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Privately-held securities, cost basis | 43,895 | | | 43,428 | | | | | |
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Total equity securities | $ | 129,866 | | | $ | 102,049 | | | | | |
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-1 | Determination of fair-value is classified as Level 1 in the fair-value hierarchy based on the use of quoted prices in active markets. | | | | | | | | | | |
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The Company holds investments in available-for-sale securities of certain publicly-traded companies. Changes in the fair-value of investments classified as available-for-sale are recorded in comprehensive income. The fair-value of the Company's equity investments in publicly-traded companies are based upon the closing trading price of the equity security as of the balance sheet date. Certain of these investments have fair-values less than the Company’s cost basis, net of previous other-than-temporary impairment in these securities due to decreases in their respective stock prices during the three months ended March 31, 2015. However, management has the intent and ability to retain the investments for a period of time sufficient to allow for an anticipated recovery in their market value. Management will continue to periodically evaluate whether any investment, the fair-value of which is less than the Company’s cost basis, should be considered other-than-temporarily impaired. If other-than-temporary impairment is considered to exist, the related unrealized loss will be reclassified from accumulated other comprehensive loss and recorded as a reduction of net income. |
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The Company also holds investments in securities of certain privately-held companies and funds, which are recorded at cost basis due to the Company’s lack of control or significant influence over such companies and funds. |
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During the three months ended March 31, 2015, the Company recorded impairment charges of $292,000. Impairment charges are included in other expense in the consolidated statements of income and relate to the Company’s investment in a publicly-traded company. Other than this investment, there were no identified events or changes in circumstances that may have a significant adverse effect on the carrying value of the Company’s cost basis investments and therefore, no evaluation of impairment was performed during the three months ended March 31, 2015 on the Company’s remaining cost basis investments. |
In April 2015, the Company received $57.1 million of proceeds from the sale of an investment in a publicly-traded company, resulting in a realized gain on sale of $43.8 million, net of allocation to a noncontrolling interest. |
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Construction Loan Receivable |
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The Company had a $255.0 million interest in a $355.0 million construction loan secured by first priority mortgages on a 1.1 million square foot laboratory, office and retail development project located in Boston, Massachusetts, which is 95% leased to Vertex Pharmaceuticals Incorporated to serve as its new corporate headquarters (the "Construction Loan"). In May 2014, the borrower repaid the then outstanding principal and accrued interest balance prior to maturity, of which the Company's portion was approximately $191.2 million. |
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Lease Termination |
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During the three months ended March 31, 2015 and 2014, the Company recorded lease termination revenue, net of write-offs of lease intangibles, included in other revenue on the consolidated statements of income of approximately $16.2 million and $5.5 million, respectively. Lease termination revenue for the three months ended March 31, 2015 primarily related to the early termination of Vertex Pharmaceuticals' leases at three of the Company's properties in Cambridge, Massachusetts. Lease termination revenue for the three months ended March 31, 2014 primarily related to the early termination of leases at the Company's 4570 Executive Drive property. |
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Management’s Estimates |
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Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reporting of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts of revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions. |
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Recent Accounting Pronouncements |
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In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. ASU 2014-09 is effective for the Company beginning January 1, 2017, although on April 1, 2015, the FASB proposed a one-year deferral of the effective date. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements as a substantial portion of the Company's revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU 2014-09. |
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In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective for the Company beginning January 1, 2016. Early adoption is permitted. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements. |
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In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. ASU 2015-03 is effective for the Company beginning January 1, 2016. Early adoption is permitted. Upon adoption, the Company will apply the new standard on a retrospective basis and adjust the balance sheet of each individual period to reflect the period-specific effects of applying the new standard. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements. |