Refer to “Lease accounting” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements for information about lease accounting standards that set principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors).

Leases in which we are the lessor

As of March 31, 2024, we had 410 properties aggregating 42.2 million operating RSF located in key clusters, including Greater Boston, the San Francisco Bay Area, San Diego, Seattle, Maryland, Research Triangle, and New York City. We focus on developing Class A/A+ properties in AAA innovation cluster locations, which we consider to be highly desirable for tenancy by life science entities. Such locations are generally characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space. As of March 31, 2024, all leases in which we are the lessor were classified as operating leases, with the exception of one direct financing lease. Our leases are described below.

Operating leases

As of March 31, 2024, our 410 properties were subject to operating lease agreements. Two of these properties, representing two land parcels, are subject to lease agreements that each contain an option for the lessee to purchase the underlying asset from us at fair market value during each of the 30-day periods commencing on the dates that are 15 years, 30 years, and 74.5 years after the rent commencement date of October 1, 2017. The remaining lease term related to each of the two land parcels is 68.7 years. Our leases generally contain options to extend lease terms at prevailing market rates at the time of expiration. Certain operating leases contain early termination options that require advance notification and payment of a penalty, which in most cases is substantial enough to be deemed economically disadvantageous by a tenant to exercise. Future lease payments to be received under the terms of our operating lease agreements, excluding expense reimbursements, in effect as of March 31, 2024 are outlined in the table below (in thousands):


Year	Amount
2024	$	1,447,841
2025	1,871,023
2026	1,803,392
2027	1,740,053
2028	1,606,401
Thereafter	10,681,698
Total	$	19,150,408

Refer to Note 3 – “Investments in real estate” to our unaudited consolidated financial statements for additional information about our owned real estate assets, which are the underlying assets under our operating leases.

Direct financing lease

As of March 31, 2024, we had one direct financing lease agreement, with a net investment balance of $40.3 million, for a parking structure with a remaining lease term of 68.7 years. The lessee has an option to purchase the underlying asset at fair market value during each of the 30-day periods commencing on the dates that are 15 years, 30 years, and 74.5 years after the rent commencement date of October 1, 2017.

The components of our aggregate net investment in our direct financing lease as of March 31, 2024 and December 31, 2023 are summarized in the table below (in thousands):


	March 31, 2024		December 31, 2023
Gross investment in direct financing lease	$	252,850	$	253,324
Less: unearned income on direct financing lease	(209,729)		(210,388)
Less: allowance for credit losses	(2,839)		(2,839)
Net investment in direct financing lease	$	40,282	$	40,097

As of March 31, 2024, our estimated credit loss related to our direct financing lease was $2.8 million. No adjustment to the estimated credit loss balance was required during the three months ended March 31, 2024. For further details, refer to “Allowance for credit losses” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

Future lease payments to be received under the terms of our direct financing lease as of March 31, 2024 are outlined in the table below (in thousands):


Year	Total
2024	$	1,445
2025	1,976
2026	2,036
2027	2,097
2028	2,160
Thereafter	243,136
Total	$	252,850

Income from rentals

Our income from rentals includes revenue related to agreements for the rental of our real estate, which primarily includes revenues subject to the lease accounting standard and the revenue recognition accounting standard as shown below (in thousands):


	Three Months Ended March 31,
	2024		2023
Income from rentals:
Revenues subject to the lease accounting standard:
Operating leases	$	746,061	$	677,422
Direct financing leases	659		648
Revenues subject to the lease accounting standard	746,720		678,070
Revenues subject to the revenue recognition accounting standard	8,831		9,879
Income from rentals	$	755,551	$	687,949

Our revenues that are subject to the revenue recognition accounting standard and are classified in income from rentals consist primarily of short-term parking revenues that are not considered lease revenues under the lease accounting standard. Refer to “Revenues” and “Recognition of revenue arising from contracts with customers” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements for additional information.

Residual value risk management strategy

Our leases do not have guarantees of residual value on the underlying assets. We manage risk associated with the residual value of our leased assets by (i) evaluating each potential acquisition of real estate to determine whether it meets our business objective to invest primarily in high-demand markets with limited supply of available space, (ii) directly managing our leased properties, conducting frequent property inspections, proactively addressing potential maintenance issues before they arise, and timely resolving any occurring issues, and (iii) carefully selecting our tenants and monitoring their credit quality throughout their respective lease terms.

Leases in which we are the lessee

Operating lease agreements

We have operating lease agreements in which we are the lessee consisting of ground and office leases. Certain of these leases have options to extend or terminate the contract terms upon meeting certain criteria. There are no notable restrictions or covenants imposed by the leases, nor guarantees of residual value.

We recognize a right-of-use asset, which is classified within other assets in our consolidated balance sheets, and a related liability, which is classified within accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets, to account for our future obligations under ground and office lease arrangements in which we are the lessee. Refer to “Lessee accounting” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

As of March 31, 2024, the present value of the remaining contractual payments aggregating $843.5 million under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $381.6 million. Our corresponding operating lease right-of-use assets, adjusted for initial direct leasing costs and other consideration exchanged with the landlord prior to the commencement of the lease, aggregated $513.3 million. As of March 31, 2024, the weighted-average remaining lease term of operating leases in which we are the lessee was approximately 41 years, and the weighted-average discount rate was 4.6%. The weighted-average discount rate is based on the incremental borrowing rate estimated for each lease, which is the interest rate that we estimate we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments.

Ground lease obligations as of March 31, 2024, included leases for 36 of our properties, which accounted for approximately 9% of our total number of properties. Excluding one ground lease that expires in 2036 related to one operating property with a net book value of $5.8 million as of March 31, 2024, our ground lease obligations have remaining lease terms ranging from approximately 30 to 98 years, including extension options that we are reasonably certain to exercise.

The reconciliation of future lease payments under noncancelable operating leases in which we are the lessee to the operating lease liability reflected in our unaudited consolidated balance sheet as of March 31, 2024 is presented in the table below (in thousands):


Year	Total
2024	$	17,232
2025	22,671
2026	22,865
2027	21,946
2028	21,614
Thereafter	737,191
Total future payments under our operating leases in which we are the lessee	843,519
Effect of discounting	(461,941)
Operating lease liability	$	381,578

Lessee operating costs

Operating lease costs relate to our ground and office leases in which we are the lessee. Ground leases generally require fixed annual rent payments and may also include escalation clauses and renewal options. Our operating lease obligations related to our office leases have remaining terms of up to 12 years, exclusive of extension options. For the three months ended March 31, 2024 and 2023, our costs for operating leases in which we are the lessee were as follows (in thousands):


	Three Months Ended March 31,
	2024		2023
Gross operating lease costs	$	9,211	$	9,457
Capitalized lease costs	(528)		(921)
Expenses for operating leases in which we are the lessee	$	8,683	$	8,536

For the three months ended March 31, 2024 and 2023, amounts paid and classified as operating activities in our unaudited consolidated statements of cash flows for leases in which we are the lessee aggregated $7.3 million and $7.3 million, respectively.

Leases

Refer to “Lease accounting” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements for information about lease accounting standards that set principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors).

Leases in which we are the lessor

As of March 31, 2024, we had 410 properties aggregating 42.2 million operating RSF located in key clusters, including Greater Boston, the San Francisco Bay Area, San Diego, Seattle, Maryland, Research Triangle, and New York City. We focus on developing Class A/A+ properties in AAA innovation cluster locations, which we consider to be highly desirable for tenancy by life science entities. Such locations are generally characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space. As of March 31, 2024, all leases in which we are the lessor were classified as operating leases, with the exception of one direct financing lease. Our leases are described below.

Operating leases

As of March 31, 2024, our 410 properties were subject to operating lease agreements. Two of these properties, representing two land parcels, are subject to lease agreements that each contain an option for the lessee to purchase the underlying asset from us at fair market value during each of the 30-day periods commencing on the dates that are 15 years, 30 years, and 74.5 years after the rent commencement date of October 1, 2017. The remaining lease term related to each of the two land parcels is 68.7 years. Our leases generally contain options to extend lease terms at prevailing market rates at the time of expiration. Certain operating leases contain early termination options that require advance notification and payment of a penalty, which in most cases is substantial enough to be deemed economically disadvantageous by a tenant to exercise. Future lease payments to be received under the terms of our operating lease agreements, excluding expense reimbursements, in effect as of March 31, 2024 are outlined in the table below (in thousands):


Year	Amount
2024	$	1,447,841
2025	1,871,023
2026	1,803,392
2027	1,740,053
2028	1,606,401
Thereafter	10,681,698
Total	$	19,150,408

Refer to Note 3 – “Investments in real estate” to our unaudited consolidated financial statements for additional information about our owned real estate assets, which are the underlying assets under our operating leases.

Direct financing lease

As of March 31, 2024, we had one direct financing lease agreement, with a net investment balance of $40.3 million, for a parking structure with a remaining lease term of 68.7 years. The lessee has an option to purchase the underlying asset at fair market value during each of the 30-day periods commencing on the dates that are 15 years, 30 years, and 74.5 years after the rent commencement date of October 1, 2017.

The components of our aggregate net investment in our direct financing lease as of March 31, 2024 and December 31, 2023 are summarized in the table below (in thousands):


	March 31, 2024		December 31, 2023
Gross investment in direct financing lease	$	252,850	$	253,324
Less: unearned income on direct financing lease	(209,729)		(210,388)
Less: allowance for credit losses	(2,839)		(2,839)
Net investment in direct financing lease	$	40,282	$	40,097

As of March 31, 2024, our estimated credit loss related to our direct financing lease was $2.8 million. No adjustment to the estimated credit loss balance was required during the three months ended March 31, 2024. For further details, refer to “Allowance for credit losses” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

Future lease payments to be received under the terms of our direct financing lease as of March 31, 2024 are outlined in the table below (in thousands):


Year	Total
2024	$	1,445
2025	1,976
2026	2,036
2027	2,097
2028	2,160
Thereafter	243,136
Total	$	252,850

Income from rentals

Our income from rentals includes revenue related to agreements for the rental of our real estate, which primarily includes revenues subject to the lease accounting standard and the revenue recognition accounting standard as shown below (in thousands):


	Three Months Ended March 31,
	2024		2023
Income from rentals:
Revenues subject to the lease accounting standard:
Operating leases	$	746,061	$	677,422
Direct financing leases	659		648
Revenues subject to the lease accounting standard	746,720		678,070
Revenues subject to the revenue recognition accounting standard	8,831		9,879
Income from rentals	$	755,551	$	687,949

Our revenues that are subject to the revenue recognition accounting standard and are classified in income from rentals consist primarily of short-term parking revenues that are not considered lease revenues under the lease accounting standard. Refer to “Revenues” and “Recognition of revenue arising from contracts with customers” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements for additional information.

Residual value risk management strategy

Our leases do not have guarantees of residual value on the underlying assets. We manage risk associated with the residual value of our leased assets by (i) evaluating each potential acquisition of real estate to determine whether it meets our business objective to invest primarily in high-demand markets with limited supply of available space, (ii) directly managing our leased properties, conducting frequent property inspections, proactively addressing potential maintenance issues before they arise, and timely resolving any occurring issues, and (iii) carefully selecting our tenants and monitoring their credit quality throughout their respective lease terms.

Leases in which we are the lessee

Operating lease agreements

We have operating lease agreements in which we are the lessee consisting of ground and office leases. Certain of these leases have options to extend or terminate the contract terms upon meeting certain criteria. There are no notable restrictions or covenants imposed by the leases, nor guarantees of residual value.

We recognize a right-of-use asset, which is classified within other assets in our consolidated balance sheets, and a related liability, which is classified within accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets, to account for our future obligations under ground and office lease arrangements in which we are the lessee. Refer to “Lessee accounting” in Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements.

As of March 31, 2024, the present value of the remaining contractual payments aggregating $843.5 million under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $381.6 million. Our corresponding operating lease right-of-use assets, adjusted for initial direct leasing costs and other consideration exchanged with the landlord prior to the commencement of the lease, aggregated $513.3 million. As of March 31, 2024, the weighted-average remaining lease term of operating leases in which we are the lessee was approximately 41 years, and the weighted-average discount rate was 4.6%. The weighted-average discount rate is based on the incremental borrowing rate estimated for each lease, which is the interest rate that we estimate we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments.

Ground lease obligations as of March 31, 2024, included leases for 36 of our properties, which accounted for approximately 9% of our total number of properties. Excluding one ground lease that expires in 2036 related to one operating property with a net book value of $5.8 million as of March 31, 2024, our ground lease obligations have remaining lease terms ranging from approximately 30 to 98 years, including extension options that we are reasonably certain to exercise.

The reconciliation of future lease payments under noncancelable operating leases in which we are the lessee to the operating lease liability reflected in our unaudited consolidated balance sheet as of March 31, 2024 is presented in the table below (in thousands):


Year	Total
2024	$	17,232
2025	22,671
2026	22,865
2027	21,946
2028	21,614
Thereafter	737,191
Total future payments under our operating leases in which we are the lessee	843,519
Effect of discounting	(461,941)
Operating lease liability	$	381,578

Lessee operating costs

Operating lease costs relate to our ground and office leases in which we are the lessee. Ground leases generally require fixed annual rent payments and may also include escalation clauses and renewal options. Our operating lease obligations related to our office leases have remaining terms of up to 12 years, exclusive of extension options. For the three months ended March 31, 2024 and 2023, our costs for operating leases in which we are the lessee were as follows (in thousands):


	Three Months Ended March 31,
	2024		2023
Gross operating lease costs	$	9,211	$	9,457
Capitalized lease costs	(528)		(921)
Expenses for operating leases in which we are the lessee	$	8,683	$	8,536

For the three months ended March 31, 2024 and 2023, amounts paid and classified as operating activities in our unaudited consolidated statements of cash flows for leases in which we are the lessee aggregated $7.3 million and $7.3 million, respectively.