ALEXANDRIA REAL ESTATE EQUITIES INC, 424B1, 1997-05-29

ALEXANDRIA REAL ESTATE EQUITIES INC
424B1, 1997-05-29
REAL ESTATE INVESTMENT TRUSTS

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FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-23545

[LOGO OF ALEXANDRIA REAL ESTATE EQUITIES, INC.]

6,750,000 SHARES
ALEXANDRIA REAL ESTATE EQUITIES, INC.
COMMON STOCK

---------------
The Company is a real estate investment trust ("REIT") formed in October
1994 to acquire, manage, expand and selectively develop high quality,
strategically located properties containing office and laboratory space. Upon
consummation of the Offering and the transactions described in "Formation and
Structure" (the "Formation Transactions"), the Company will own 15 Properties,
including three Properties to be acquired in connection with the Offering,
containing approximately 1.5 million rentable square feet of office and
laboratory space. All of the shares (the "Shares") of the Company's Common
Stock offered hereby are being sold by the Company. See "Underwriting" for a
discussion of factors relating to the determination of the initial public
offering price. The Shares will represent approximately 65.0% of all
outstanding shares of Common Stock. Prior to this Offering, there has been no
public market for the Common Stock.
To ensure that the Company maintains its qualification as a REIT, the
Company's charter provides, with exceptions for certain existing investors
(the "Continuing Investors"), that no person may own more than 9.8% of the
outstanding shares of any class or series of capital stock of the Company. See
"Description of Capital Stock--Restrictions on Transfer." The Company
currently intends to make regular quarterly distributions and initially to
distribute annually approximately 88.6% of estimated cash available for
distribution. See "Distributions." The Common Stock has been approved for
listing on the New York Stock Exchange, subject to official notice of
issuance, under the symbol "ARE."

SEE "RISK FACTORS" STARTING ON PAGE 18 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SHARES, INCLUDING:

. The lack of industry diversification and the Company's reliance on the Life
Science Industry;
. Reliance on a limited number of major tenants and on the ability of such
tenants to make rental payments, and related property management risks,
including nonrenewal of space or inability to relet space;
. The concentration of the Company's properties in a limited number of
markets;
. Conflicts of interest in connection with the Offering and the Formation
Transactions, including material benefits to the Continuing Investors;
. Benefits to PaineWebber Incorporated, the lead managing underwriter of the
Offering, and certain of its affiliates, including, in addition to
underwriting discounts and commissions and a fee for structural and advisory
services equal to 1% of the gross proceeds of the Offering, approximately
$58.9 million in connection with the sale to the Company of the Acquisition
LLC (defined herein), which owns three of the Properties that were
originally purchased by the Acquisition LLC for approximately $51.7 million,
and $44.4 million as repayment of debt under the PaineWebber Facility
(defined herein);
. The rapid growth of the Company, its limited operating history and the
limited experience of current management in REIT operations;
. Real estate financing risks, including that cash flows may be insufficient
to meet required payments of principal and interest on outstanding debt and
that interest rates could increase on variable rate debt;
. Economic and other conditions affecting the value of the Company's
properties, the relative illiquidity of real estate, increases in taxes and
potential liabilities for unknown or future environmental problems;
. Taxation of the Company as a corporation if it fails to qualify as a REIT
and the resulting decrease in amounts available for distribution to
stockholders; and
. The Company will pay approximately $7.2 million in financing costs
(associated with the acquisition of the Acquisition LLC) with a portion of
the net proceeds of the Offering and has made an adjustment to estimated
cash available for distribution to eliminate the effects of these one-time
costs.
---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $20.00 $1.30 $18.70
- ----------------------------------------------------------------------------------------------------
Total....................................... $135,000,000 $8,775,000 $126,225,000
- ----------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option(3)........................ $155,250,000 $10,091,250 $145,158,750
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $4,600,000, which are payable by
the Company ($4,900,000 if the over-allotment option is exercised in
full).
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 1,012,500 additional shares of Common
Stock on the same terms and conditions, solely to cover over-allotments.
See "Underwriting."

---------------
The Shares are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to their
right to reject orders in whole or in part. It is expected that delivery of
the Shares will be made in New York City on or about June 2, 1997.
---------------
PAINEWEBBER INCORPORATED
LEHMAN BROTHERS
SMITH BARNEY INC.
EVEREN SECURITIES, INC.
---------------
THE DATE OF THIS PROSPECTUS IS MAY 27, 1997
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE
ITS MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY........................................................ 1
The Company.............................................................. 1
Risk Factors............................................................. 2
Growth Strategies........................................................ 3
The Properties........................................................... 7
Structure of the Company................................................. 9
The Offering............................................................. 13
Distributions............................................................ 13
Tax Status of the Company................................................ 14
Summary Financial Information............................................ 14
RISK FACTORS.............................................................. 18
Lack of Industry Diversification; Reliance on Life Science Industry
Tenants................................................................. 18
Environmental Matters................................................... 18
Uncertainty of Government Regulatory Requirements and Funding........... 18
Dependence on Reimbursement............................................. 18
Dependence on Tenants.................................................... 19
Geographic Concentration; Dependence on Certain Markets.................. 19
Conflicts of Interest.................................................... 20
Benefits to Managing Underwriter......................................... 20
Rapid Growth............................................................. 21
Limited Operating History................................................ 21
Experience of Management................................................. 21
Real Estate Financing.................................................... 21
Debt Financing and Existing Debt Maturities............................. 21
Requirement of Additional Financing..................................... 22
Rising Interest Rates................................................... 22
Acquisition and Renovation............................................... 22
Real Estate Investment................................................... 23
Variability of Revenues and Expenses.................................... 23
Cost of Improvements.................................................... 23
Bankruptcy of Tenants................................................... 23
Expansion and Development............................................... 23
Illiquidity of Investments.............................................. 24
Competition for Investment Opportunities................................ 24
Adverse Consequences of Failure to Qualify as a REIT..................... 24
Influence of Certain Stockholders........................................ 25
Anti-takeover Effect of Ownership Limit and Power to Issue Additional
Stock................................................................... 26
Uninsured Loss........................................................... 26
Possible Environmental Liabilities....................................... 27
Costs of Compliance with Americans with Disabilities Act................. 28
Changes in Laws.......................................................... 28
Reliance on Key Personnel................................................ 28
Change in Policies Without Stockholder Approval.......................... 28
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No Limitation on Debt.................................................... 29
Inability to Sustain Distributions....................................... 29
Adjustment to Eliminate Effects of One-Time Financing Costs on Cash
Available for Distribution.............................................. 29
Absence of Prior Market for Shares....................................... 30
Effect of Market Interest Rates on Price of Shares....................... 30
Effect of Future Offerings on Price of Shares............................ 30
Immediate and Substantial Dilution....................................... 30
Shares Eligible for Future Sale.......................................... 30
THE COMPANY............................................................... 32
Growth Strategies........................................................ 33
Tenant Demand............................................................ 36
TARGET MARKETS............................................................ 38
Existing Markets......................................................... 38
Additional Target Markets................................................ 39
Market Study............................................................. 39
DISTRIBUTIONS............................................................. 41
USE OF PROCEEDS........................................................... 45
CAPITALIZATION............................................................ 46
DILUTION.................................................................. 47
SELECTED FINANCIAL DATA................................................... 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 51
Overview................................................................. 51
Results of Operations.................................................... 51
Pro Forma Results of Operations.......................................... 53
Liquidity and Capital Resources.......................................... 54
Historical Cash Flows.................................................... 55
Funds from Operations.................................................... 56
Inflation................................................................ 57
THE PROPERTIES............................................................ 58
General.................................................................. 58
Location and Type of Space............................................... 61
Lease Expirations........................................................ 61
Lease Expirations--Property by Property.................................. 62
Tenants.................................................................. 65
Property Descriptions.................................................... 66
California............................................................... 66
Seattle, Washington...................................................... 68
Suburban Washington, D.C. ............................................... 69
Acquisition LLC Properties............................................... 70
Competition.............................................................. 71
Insurance................................................................ 71
Environmental Matters.................................................... 71
Legal Proceedings........................................................ 72
</TABLE>

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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES................................ 73
Investment Policies....................................................... 73
Disposition Policy........................................................ 73
Financing Policies........................................................ 74
Conflict of Interest Policies............................................. 74
Policies with Respect to Other Activities................................. 75
FORMATION AND STRUCTURE.................................................... 75
Formation and Related Transactions........................................ 75
New Mortgage Debt......................................................... 77
Benefits to Related Parties............................................... 78
MANAGEMENT................................................................. 80
Directors, Executive Officers and Senior Management....................... 80
Election of Directors and Director Compensation........................... 82
Committees of the Board of Directors...................................... 83
Executive Compensation.................................................... 83
Benefit Plans............................................................. 84
Employment Agreements..................................................... 85
Compensation Committee Interlocks and Insider Participation............... 86
Limitation of Liability and Indemnification............................... 86
CERTAIN TRANSACTIONS....................................................... 88
SHARE OWNERSHIP............................................................ 90
Principal Stockholders of Alexandria...................................... 90
Certain Beneficial Ownership in Holdings.................................. 91
DESCRIPTION OF CAPITAL STOCK............................................... 92
General................................................................... 92
Common Stock.............................................................. 92
Preferred Stock........................................................... 92
Power to Issue Additional Shares of Common Stock and Preferred Stock...... 93
</TABLE>
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Restrictions on Transfer................................................. 93
Transfer Agent and Registrar............................................. 95
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S CHARTER AND
BYLAWS................................................................... 95
Board of Directors....................................................... 95
Business Combinations.................................................... 96
Control Share Acquisitions............................................... 96
Advance Notice of Director Nominations and New Business ................. 97
Amendment to the Charter or Bylaws....................................... 97
Dissolution of the Company............................................... 97
Anti-takeover Effect of Certain Provisions of Maryland Law and of the
Charter and Bylaws...................................................... 97
SHARES ELIGIBLE FOR FUTURE SALE........................................... 98
FEDERAL INCOME TAX CONSIDERATIONS......................................... 99
Taxation of the Company.................................................. 99
Taxation of Taxable Domestic Stockholders................................ 104
Taxation of Tax-Exempt Stockholders...................................... 104
Taxation of Non-U.S. Holders............................................. 104
Other Tax Consequences................................................... 106
UNDERWRITING.............................................................. 108
LEGAL MATTERS............................................................. 110
EXPERTS................................................................... 111
ADDITIONAL INFORMATION.................................................... 111
GLOSSARY.................................................................. 112
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Capitalized and certain
other terms used herein shall have the meanings assigned to them in the
Glossary. Unless the context otherwise requires, references in this Prospectus
to the "Company" mean, collectively, (i) Alexandria Real Estate Equities, Inc.
("Alexandria"), (ii) ARE-QRS Corp. ("QRS"), a wholly owned subsidiary of
Alexandria, (iii) ARE-1431 Harbor Bay, LLC, a special-purpose limited liability
company of which Alexandria holds a 99% non-managing interest and QRS holds a
1% managing interest ("Harbor Bay, LLC"), and (iv) ARE Acquisitions, LLC
(formerly PW Acquisitions I, LLC) (the "Acquisition LLC"). See "Formation and
Structure." Unless otherwise indicated, the information in this Prospectus
assumes that: (i) the Underwriters' over-allotment option is not exercised; and
(ii) the Formation Transactions have occurred.

THE COMPANY

Alexandria was formed in October 1994 to acquire, manage, expand and
selectively develop high quality, strategically located properties containing
office and laboratory space designed and improved for lease principally to
pharmaceutical, biotechnology, diagnostic and personal care products companies,
major scientific research institutions and related government agencies
(collectively, the "Life Science Industry"). The Company's tenant base is broad
and diverse within the Life Science Industry and reflects the Company's focus
on regional, national and international tenants with substantial financial and
operational resources.

Upon consummation of the Offering and the Formation Transactions, the Company
will own 15 Properties, including three Properties to be acquired in connection
with the Offering, containing approximately 1.5 million rentable square feet of
office and laboratory space located in California (in the San Diego and San
Francisco Bay areas), Seattle, Washington and suburban Washington, D.C.
(including Maryland and Virginia), each of which is a leading market in the
United States for the Life Science Industry. To facilitate research and
development, technology transfer and recruitment of scientific professionals,
Life Science Industry companies generally cluster near major scientific
research institutions, universities and government agencies, all of which drive
demand for properties combining office and laboratory space suitable for such
tenants. As a result, the Company focuses its operations and acquisition
activities principally in a limited number of target markets, including all of
the Company's existing markets and certain other markets where Life Science
Industry tenants are concentrated, including Boston/Cambridge and the New
York/New Jersey and suburban Philadelphia areas. As of April 30, 1997, the
Properties were approximately 98% leased, at an average Annualized Net
Effective Rent per leased square foot of $18.20.

The multibillion dollar Life Science Industry comprises some of the fastest
growing segments of the U.S. economy and includes thousands of public and
private companies and scientific research institutions engaged principally in
the research, development, testing, manufacture, sale and regulation of
pharmaceuticals, diagnostics, personal care products, medical devices,
laboratory instrumentation and other related applications. Properties leased to
tenants in the Life Science Industry typically consist of suburban office
buildings containing scientific research and development laboratories and other
improvements that are generic to tenants operating in the Life Science Industry
(such properties, "Life Science Facilities"). Unlike traditional office space,
the location of and improvements to Life Science Facilities are generally
considered essential to a tenant's business. The Company believes that, as a
result of these factors, occupancy levels in Life Science Facilities within its
markets have been higher and tenant turnover has been lower than in traditional
office properties.

1
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due to the expertise generally required to develop and manage this property
type; (iii) the highly fragmented and inefficient market for ownership of Life
Science Facilities; (iv) the Company's adherence to strict evaluation criteria
and due diligence review when assessing prospective properties and tenants; and
(v) the Company's knowledge and understanding of Life Science Industry tenants
and their real estate needs. Additionally, the personal and business
relationships that management has developed over time within the real estate
and Life Science industries have contributed significantly to the Company's
ability to identify and consummate favorable acquisitions and to lease space to
high quality Life Science Industry tenants. Management believes that the
Company will be the first publicly traded entity focusing primarily on the
acquisition, management, expansion and selective development of Life Science
Facilities.

Upon consummation of the Offering and the Formation Transactions, Health
Science Properties Holding Corporation ("Holdings"), which is owned principally
by founding stockholders (including officers and directors) of the Company,
will own approximately 17.0% of the outstanding shares of Common Stock. The
Company's Continuing Investors, consisting of Holdings, AEW Partners II, L.P.
and certain of its affiliates (collectively, "AEW"), and officers, directors
and certain employees of the Company, will own an aggregate of approximately
35.0% of the outstanding shares of Common Stock. See "Formation and Structure"
for a detailed discussion of the Formation Transactions. See also "Share
Ownership."

RISK FACTORS

An investment in the Shares involves various risks, and prospective investors
should carefully consider the matters discussed under "Risk Factors" prior to
an investment in the Company. Such risks include, among others:

. The lack of industry diversification and the Company's reliance on the
Life Science Industry, including the extensive government regulation of
Life Science Industry tenants and certain related environmental
concerns, and the potential inability of the Company to identify
suitable Life Science Industry tenants. See "Risk Factors--Lack of
Industry Diversification; Reliance on Life Science Industry Tenants."

. Reliance on a limited number of major tenants, of which the three
largest (American Medical Laboratories, Inc., the Fred Hutchinson Cancer
Research Center and Agouron Pharmaceuticals, Inc.) account for
approximately 37.5% of the Company's Annualized Base Rent from the
Properties, and on the ability of such tenants to make rental payments,
and related property management risks, including nonrenewal of space or
inability to relet space. Leases representing 21.2% of Annualized Base
Rent will expire by the end of 1999. See "Risk Factors--Dependence on
Tenants."

. The concentration of the Properties in a limited number of markets and
the resulting dependence of the Company on economic conditions in such
markets. See "Risk Factors--Geographic Concentration; Dependence on
Certain Markets."

. Conflicts of interest in connection with the Offering and the Formation
Transactions, including material benefits to certain officers, directors
and affiliates of the Company (including the increase in the net
tangible book value of the shares of Common Stock held by them). See
"Risk Factors--Conflicts of Interest."

. Benefits to PaineWebber, the lead managing underwriter of the Offering,
and certain of its affiliates, including (i) a portion of the
underwriting discounts and commissions (which in the aggregate will be
6.5% of the gross proceeds of the Offering) to be determined principally
based on the number of Shares sold and/or underwritten by PaineWebber,
(ii) a fee for structural and advisory services equal to 1% of the gross
proceeds of the Offering (approximately $1.4 million), (iii)
approximately $58.9 million in connection with the sale to the Company
of the Acquisition LLC, which owns the three Acquisition LLC Properties
that were originally purchased by the Acquisition LLC for approximately
$51.7 million, and (iv) $44.4 million as repayment of amounts
outstanding under the PaineWebber Facility. See "Risk Factors--Benefits
to Managing Underwriter," "Use of Proceeds" and "Underwriting."

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. The rapid growth of the Company and its limited operating history,
including the risk that the Company may not be able to effectively
integrate new acquisitions into its operations and that the Properties
may have characteristics or deficiencies unknown to the Company that
could adversely affect such Properties, and the limited experience of
current management in REIT operations. See "Risk Factors--Rapid Growth";
"--Limited Operating History" and "--Experience of Management."

. Real estate financing risks, including that cash flows may be
insufficient to meet required payments of principal and interest on
outstanding debt and that interest rates could increase on variable rate
debt. See "Risk Factors--Real Estate Financing."

. Acquisition risks, including that acquired properties will fail to
perform in accordance with expectations, that the Company has overpaid
for such properties, that the Company may have underestimated costs of
improvements, or that the Company may not be able to acquire desired
properties. See "Risk Factors--Acquisition and Renovation."

. Economic and other conditions affecting the value of the Company's
properties, competition, the relative illiquidity of real estate,
increases in taxes and other operating expenses and potential
liabilities for unknown or future environmental problems. See "Risk
Factors--Real Estate Investment Risks."

. Taxation of the Company as a corporation if the Company fails to qualify
as a REIT and the resulting decrease in the amounts available for
distribution to stockholders. See "Risk Factors--Adverse Consequences of
Failure to Qualify as a REIT."

. Significant stock ownership by Holdings and AEW (approximately 17.0% and
16.0%, respectively) after the Offering and limitations on ownership of
the capital stock by other stockholders of the Company, which may delay,
defer or prevent third parties from seeking to control or acquire the
Company in transactions that may otherwise be beneficial to the
stockholders. See "Risk Factors--Influence of Certain Stockholders" and
"--Anti-takeover Effect of Ownership Limit and Power to Issue Additional
Stock."

. Certain types of losses, such as from earthquakes, could exceed the
Company's insurance coverage. See "Risk Factors--Uninsured Loss."

. The Company will pay approximately $7.2 million of financing costs
(associated with the acquisition of the Acquisition LLC) with a portion
of the net proceeds of the Offering and has made an adjustment to
estimated cash available for distribution to eliminate the effects of
these one-time costs. Without this adjustment, the estimated cash
available for distribution as calculated under the caption
"Distributions" would be insufficient to fund the Company's anticipated
distributions to stockholders.

GROWTH STRATEGIES

The Company seeks to maximize growth in funds from operations ("FFO") and
cash available for distribution to stockholders through effective management,
operation, acquisition, expansion and selective development of Life Science
Facilities. The White Paper on FFO approved by the Board of Governors of the
National Association of Real Estate Investment Trusts ("NAREIT") in March 1995
(the "White Paper") defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Management
believes FFO is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and make
capital expenditures. The Company computes FFO in accordance with the standards
established by the White Paper, which may differ from the methodology for
calculating FFO utilized by other equity REITs, and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent amounts
available for management's discretionary use because of needed capital
replacement or expansion, debt service obligations, or other commitments and
uncertainties. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial

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performance or to cash flows from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make distributions. The Company believes that opportunities exist to
increase FFO and cash available for distribution per share by (i) acquiring
high quality Life Science Facilities at attractive returns in its target
markets, (ii) realizing contractual rental rate escalations (which are included
in approximately 65% of the Company's leases on a square footage basis), (iii)
retenanting and releasing space within its portfolio at higher rental rates and
with minimal tenant improvement costs, (iv) expanding existing Properties or
converting existing office space to generic laboratory space that can be leased
at higher rental rates, (v) selectively developing properties on a retrofit or
build-to-suit basis, where the Company can secure leases prior to construction
and where such development is expected to result in returns on investment that
the Company believes will exceed returns on comparable acquisitions, and (vi)
continuing to implement effective cost control measures, including expense
pass-through provisions in tenant leases. In pursuing its growth strategy, the
Company intends to maintain significant financial flexibility, enabling it to
take advantage of growth opportunities as they arise.

Tenant demand for Life Science Facilities in the Company's target markets is
driven largely by the size and growth of the Life Science Industry and its
various segments, and particularly by the Life Science Industry's expenditures
on research and development. Growth in the Life Science Industry creates demand
for Life Science Facilities because traditional office space is generally
inadequate to meet the needs of Life Science Industry tenants. The Life Science
Industry has experienced significant growth over the past 25 years and the
Company believes such growth should continue. For example, according to
Pharmaceutical Research and Manufacturers of America ("PhRMA"), the principal
industry trade group for major pharmaceutical research companies, U.S.
pharmaceutical industry sales and exports by PhRMA member firms have grown at a
compound annual rate of 10.5% since 1985, and are estimated to have totaled
over $66.7 billion in 1996. Further, domestic research and development
expenditures by PhRMA member firms have increased at a compound annual rate of
over 13% since 1985, and are estimated to have totaled approximately $13.3
billion in 1996 and to total approximately $15.0 billion in 1997. According to
PhRMA, research and development expenditures as a percentage of U.S. sales and
exports for PhRMA member firms were approximately 19.4% in 1995, versus
approximately 3.8% for U.S. industries generally. Although the PhRMA data is
based on information compiled principally from the nation's largest
pharmaceutical companies, the Company believes this data reflects growth in
research-based pharmaceutical companies generally. In addition, private sector
spending in the Life Science Industry augments extensive public sector funding
for scientific research.

The Company believes that several factors should continue to drive increases
in research and development expenditures, and thus increase the demand for Life
Science Facilities. These factors include (i) the aging of the U.S. population
resulting from the transition of baby boomers to senior citizens, which has
increased demand for new drugs, (ii) increased competition resulting from
generic drug penetration and the loss of patent protection on billions of
dollars worth of drugs, both of which have increased the need for proprietary
drug manufacturers to develop new products, (iii) the desire of companies to
reduce research and development lead times to bring new products to market
faster, (iv) modifications to the U.S. Food and Drug Administration (the "FDA")
approval process, which have reduced the effective cost of new drug development
and (v) increased collaborative efforts among major pharmaceutical and
biotechnology companies, which have increased capital availability to Life
Science Industry participants.

Acquisitions. The Company seeks to identify and acquire high quality Life
Science Facilities in its target markets. Management believes that it has been
able to maximize returns on acquisitions as a result of its expertise in
understanding the real estate needs of Life Science Industry tenants, its
ability to identify and acquire those properties with generic laboratory
infrastructure that appeal to a wide range of Life Science Industry tenants and
its expertise in identifying and evaluating Life Science Industry tenants. The
Company also seeks to utilize the extensive personal and business relationships
that management has developed over time with owners of Life Science Facilities
and with major Life Science Industry participants to identify prospective
acquisition opportunities and to consummate favorable acquisitions prior to the
active marketing of the subject properties.

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The Company believes that the ownership of Life Science Facilities is highly
fragmented and that such fragmentation often creates pricing inefficiencies in
the sale of such properties. Life Science Facilities are generally owned by
numerous local developers and institutions, many of whom own or operate a
single facility. Additionally, management believes that numerous Life Science
Facilities are occupied by owners who desire to focus their investments on and
attention to their respective core businesses, and not on ownership of real
estate.

Critical evaluation of prospective property acquisitions is an essential
component of the Company's acquisition strategy. When evaluating acquisition
opportunities, the Company assesses a full range of matters relating to the
properties, including the quality of the tenants, the condition and capacity of
building infrastructure, the quality and generic characteristics of laboratory
facilities and the physical condition of the shell structure and common area
improvements. Management also considers opportunities available for leasing
vacant space and retenanting occupied space. In addition, the Company is
developing a proprietary database that will contain information on Life Science
Facilities and Life Science Industry tenants located in each of the Company's
target markets. The database is designed to enhance the Company's ability to
identify and evaluate prospective acquisitions in such markets.

In connection with the Offering, the Company will purchase the Acquisition
LLC, thereby acquiring three Properties (the "Acquisition LLC Properties"),
aggregating approximately 424,000 square feet of office and laboratory space,
for a purchase price of approximately $58.9 million. The Acquisition LLC
Properties are 14225 Newbrook Drive in Chantilly, Virginia, 1330 Piccard Drive
in Rockville, Maryland and 1550 East Gude Drive in Rockville, Maryland. See
"The Properties."

Internal Growth. The Company's strategy is to achieve internal growth from
several sources. Approximately 65% of the Company's leases (on a square footage
basis) contain effective annual rent escalations that are either fixed (ranging
from 2.5% to 4.0%) or indexed based on a CPI or other index. The Company will
seek to include similar escalation provisions in its future leases. Although
most of the Company's recent acquisitions have been fully leased, the Company
also seeks to acquire undervalued or underperforming properties where it can
improve investment returns through releasing of vacant space and replacement of
existing tenants with new tenants at higher rental rates. Further, the Company
believes that a significant percentage of its existing leases contain below-
market rental rates and that opportunities should exist to achieve higher
rental rates as these leases expire. The Company believes that retenanting and
releasing costs for existing improved space at its Properties should be
relatively low, as a result of the favorable demand and supply characteristics
for Life Science Facilities in the Company's target markets and the generic
infrastructure improvements that are already in place at the Properties. Since
1994 (through April 30, 1997), the Company has retenanted approximately 241,000
square feet of space at a weighted average cost for non-revenue enhancing
tenant improvements and leasing commissions of $7.87 per square foot. The
Company's ability to negotiate contractual rent escalations in future leases
and to achieve increases in rental rates will depend upon market conditions and
demand for Life Science Facilities at the time such leases are negotiated and
such increases are proposed.

The Company also intends to pursue internal growth through the expansion of
existing facilities that are fully leased and the conversion of existing office
space to higher rent generic laboratory space. The Company is currently
evaluating expansion opportunities at several of its Properties, including 1413
Research Boulevard in Rockville, Maryland, which is designed to accommodate an
additional 60,000 square feet of office and laboratory space, and 14225
Newbrook Drive in Chantilly, Virginia, which can accommodate three additional
floors or up to approximately 50,000 square feet of additional office and
laboratory space. The Company is also currently considering the conversion of
office space into higher rent generic laboratory space at 300 Professional
Drive in Gaithersburg, Maryland, 25, 35 and 45 West Watkins Mill Road in
Gaithersburg, Maryland, and 1311 Harbor Bay Parkway in Alameda, California. In
the first quarter of 1997, the Company completed the conversion of
approximately 21,000 square feet into higher rent generic laboratory space at
1102 and 1124 Columbia Street in Seattle, Washington, and in 1998 the Company
will convert an additional approximately 28,000 square feet of

5
<PAGE>

space into higher rent generic laboratory space at this Property. The Company
has invested approximately $1.4 million and will invest an additional
$3.4 million in these conversion projects (as well as in certain related
improvements to the Property), which funds have been set aside in a separate
cash account pursuant to the terms of the Company's lease with Corixa
Corporation, which will occupy all of the converted space. Based on this lease
and the planned expenditures, the Company estimates a return on investment of
approximately 14% on these projects. The Company intends to pursue expansion
and conversion projects only where the Company can secure signed leases for a
significant portion of such space prior to construction and where it expects to
achieve investment returns that equal or exceed its returns on acquisitions.

Development. Given the current favorable acquisition environment for Life
Science Facilities, the Company intends to emphasize acquisitions over
development in pursuing its growth objectives. However, the Company intends to
pursue selective build-to-suit and retrofit development projects where it
expects to achieve investment returns that will equal or exceed its returns on
acquisitions. Build-to-suit projects involve the construction of new Life
Science Facilities for specified tenants. Retrofit projects involve the
conversion of existing office space for use by Life Science Industry tenants,
generally through the addition of laboratory space and other generic
infrastructure improvements. The Company intends to undertake build-to-suit and
retrofit projects only if it can secure long-term leases (generally 10 years or
more) with high quality Life Science Industry tenants prior to construction and
the Company's investment in infrastructure will be generic in nature and not
tenant specific.

The Company's 10933 North Torrey Pines Road Property in San Diego,
California, is situated on approximately 16 acres of land. The Company has
rights to construct up to an additional 163,000 square feet of office and
laboratory space on this parcel. The Company also has entered into a purchase
agreement to acquire two parcels of land, aggregating approximately 4.2 acres,
adjacent to the Company's 3535 and 3565 General Atomics Court Properties, also
in the Torrey Pines area of San Diego, California. The purchase price for the
land is approximately $2.7 million, of which the Company has paid a deposit of
$200,000. The Company will have the ability (subject to receipt of necessary
governmental approvals and licenses) to develop and construct two buildings on
the land, containing an aggregate of approximately 90,000 square feet of office
and laboratory space. There can be no assurance, however, that the Company will
acquire the land or will be able to enter into desirable build-to-suit
arrangements.

Financing. Upon consummation of the Offering and the Formation Transactions,
the Company will have a debt to total market capitalization ratio (i.e., total
consolidated debt of the Company as a percentage of the market value of
outstanding shares of capital stock of the Company and total consolidated debt)
of approximately 21%. The Company has a commitment from the Bank of America
National Trust and Savings Association (the "Bank of America") to provide, upon
consummation of the Offering, an unsecured revolving credit facility (the
"Credit Facility") for up to $150 million, which will be used primarily for the
acquisition of additional properties. Upon consummation of the Offering and the
Formation Transactions, the Company will have approximately $1.0 million
principal amount of indebtedness outstanding under the Credit Facility. The
Company has adopted a policy of incurring debt in the future only if, upon such
incurrence, its debt to total market capitalization ratio will not exceed 50%.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a description of certain
conditions to borrowing and other provisions applicable to the Credit Facility
and "Policies With Respect to Certain Activities" for a discussion of the
Company's policy of incurring debt.

The Company expects to finance future acquisitions initially through the
Credit Facility and then to refinance such indebtedness with debt or equity
capital. The Company may also issue Common Stock or interests in subsidiaries
as consideration for acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company believes that its access to capital should provide it
with a competitive advantage in acquisitions over other bidders that qualify
their bids with financing or other contingencies.

6
<PAGE>

THE PROPERTIES

Upon consummation of the Offering and the Formation Transactions, the Company
will own 15 Properties, including the Acquisition LLC Properties, containing
approximately 1.5 million rentable square feet of office and laboratory space.
The buildings are generally one or two stories and are built primarily of
concrete tilt-up or block and steel frame construction. Building exteriors
typically resemble traditional suburban office properties, but interior
infrastructures are enhanced with generic improvements designed to meet the
needs of Life Science Industry tenants. These improvements include, for each
Property, reinforced concrete floors, upgraded roof loading capacity and
increased floor to ceiling heights; heavy-duty heating, ventilation and air
conditioning ("HVAC") systems and advanced environmental control technology;
significantly upgraded electrical, gas and plumbing infrastructure; and
laboratory benches.

The following table summarizes the Properties by geographic region:

<TABLE>
<CAPTION>
ANNUALIZED
YEAR APPROXIMATE ANNUALIZED BASE NET EFFECTIVE
BUILT/ RENTABLE PERCENTAGE PERCENTAGE RENT PER LEASED RENT PER LEASED
PROPERTIES RENOVATED(1) SQUARE FEET LAB SPACE LEASED(2) SQUARE FOOT(3) SQUARE FOOT(4) MAJOR TENANTS
- ---------- ------------ ----------- ----------- ---------- --------------- --------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
San Diego
- ---------
10933 North 1971/1994 108,133 71% 100% $21.35 $15.84 The Scripps Research
Torrey Pines Institute
Road Advanced Tissue
San Diego, CA Sciences, Inc.
11099 North 1986/1996 86,962 71 100 25.38 23.66 Agouron Pharmaceuticals, Inc.
Torrey Pines Sequana Therapeutics, Inc.
Road
San Diego, CA
3535 General 1991 76,084 77 100 32.99 32.11 The Scripps Research
Atomics Court Institute
San Diego, CA The R.W. Johnson
Research Institute(5)
Syntro Corporation(6)
3565 General 1991 43,600 80 100 35.02 35.02 Agouron Pharmaceuticals, Inc.
Atomics Court
San Diego, CA

San Francisco
Bay Area
- -------------
1311 Harbor Bay 1984 30,000 17 30(7) 16.48 16.48 Chiron Corporation
Parkway
Alameda, CA
1401 Harbor Bay 1986/1994 47,777 50 100 10.87 10.87 Chiron Diagnostics
Parkway
Alameda, CA
1431 Harbor Bay 1985/1994 70,000 50 100 20.22 12.87 FDA
Parkway
Alameda, CA
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
ANNUALIZED
YEAR APPROXIMATE ANNUALIZED BASE NET EFFECTIVE
BUILT/ RENTABLE PERCENTAGE PERCENTAGE RENT PER LEASED RENT PER LEASED
PROPERTIES RENOVATED(1) SQUARE FEET LAB SPACE LEASED(2) SQUARE FOOT(3) SQUARE FOOT(4) MAJOR TENANTS
- ---------- ------------ ----------- ----------- ---------- --------------- --------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Seattle,
Washington
- -----------
1102/1124 Columbia 1975/1997 213,397 64 100 23.24 23.01 Fred Hutchinson Cancer
Street Research Center
Seattle, WA Corixa Corporation
Swedish Medical
Center
Suburban Washington, D.C.
- -------------------------
300 Professional 1989 48,440 23 100 13.83 13.83 Mobile Telesystems,
Drive Inc.
Gaithersburg, MD Antex Biologics Inc.
401 Professional 1987 62,739 75 100 16.55 16.55 Gillette Capital
Drive Corporation(8)
Gaithersburg, MD
25/35/45 West 1989/1997 138,938 39 93 13.56 13.56 Genetic Therapy,
Watkins Mill Road Inc.(9)
Gaithersburg, MD MedImmune, Inc.
1413 Research 1967/1996 105,000 75 100 14.89 13.29 U.S. Army Corps of
Boulevard Engineers
Rockville, MD
--------- --- --- ------ ------
Subtotal/Weighted
Average(12): 1,031,070 61% 97% $20.61 $19.07

ACQUISITION LLC
PROPERTIES(10)
- ---------------
Suburban Washington, D.C.
- -------------------------
1550 East Gude 1981/1995 44,500 40 100 13.42 13.42 Quest Diagnostics,
Drive Inc.(11)
Rockville, MD
1330 Piccard Drive 1978/1995 131,511 75 100 14.48 14.48 PerImmune, Inc.
Rockville, MD
14225 Newbrook 1992 248,186 60 100 17.49 17.49 American Medical
Drive Laboratories, Inc.
Chantilly, VA
--------- --- --- ------ ------
Subtotal/Weighted
Average(12): 424,197 63% 100% $16.13 $16.13
--------- --- --- ------ ------
Total/Weighted
Average(12): 1,455,267 61% 98% $19.28 $18.20
========= === === ====== ======
</TABLE>
- -------
(1) Includes year in which construction was completed and, where applicable,
year of most recent major renovation.
(2) Based on all leases at the respective Property in effect as of April 30,
1997.
(3) Annualized Base Rent means the annualized fixed base rental amount in
effect as of April 30, 1997 (using rental revenue calculated on a straight-
line basis in accordance with generally accepted accounting principles
("GAAP")). In the case of triple net leases, Annualized Base Rent does not
include real estate taxes and insurance, common area and other operating
expenses, substantially all of which are borne by the tenants. This amount,
divided by the rentable square feet leased at the Property as of April 30,
1997, is the Annualized Base Rent per Leased Square Foot.
(4) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
April 30, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized
tenant improvements and leasing commissions. This amount, divided by the
rentable square feet leased at the Property as of April 30, 1997, is the
Annualized Net Effective Rent per Leased Square Foot.
(5) The R.W. Johnson Research Institute is a wholly owned subsidiary of Johnson
& Johnson.
(6) Syntro Corporation is a wholly owned subsidiary of Mallinckrodt, Inc.
(7) Vacancy represents 20,973 square feet of office space. The Company is in
lease negotiations with respect to all of the vacant office space.
(8) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette
Company.
(9) Genetic Therapy, Inc. is a wholly owned subsidiary of Novartis AG.
(10) Represents Properties to be acquired through the acquisition of the
Acquisition LLC in connection with the Offering and the Formation
Transactions. See "Formation and Structure."
(11) Quest Diagnostics, Inc. subleases its space to Shire Laboratory, Inc., a
wholly owned subsidiary of Shire Pharmaceuticals Group p.l.c.
(12) Weighted Average based on a percentage of aggregate leased square feet.

8
<PAGE>

STRUCTURE OF THE COMPANY

FORMATION AND STRUCTURE

The Company was formed in October 1994 and, prior to consummation of the
Formation Transactions, had outstanding 1,000 shares of Common Stock, 12 shares
of Series T Preferred Stock, 220 shares of Series U Preferred Stock, and 27,500
shares of Series V Preferred Stock. In connection with the Offering, each
outstanding share of Common Stock was split into 1,765.923 shares of Common
Stock. In addition, in connection with the Offering, the Company will redeem
all of the outstanding shares of its Series T Preferred Stock, and has
converted into shares of Common Stock all of the outstanding shares of its
Series U Preferred Stock and will convert all of the outstanding shares of its
Series V Preferred Stock. As a result, upon consummation of the Offering and
the Formation Transactions, Holdings, which is owned principally by founding
stockholders (including officers and directors) of the Company, will hold
1,765,923 shares of Common Stock, the officers, directors and certain employees
of the Company will directly own 209,615 shares of Common Stock, and AEW will
hold 1,659,239 shares of Common Stock, representing approximately 17.0%, 2.0%
and 16.0% of the outstanding shares of Common Stock, respectively. Upon
consummation of the Offering, the Company also will acquire, from certain
affiliates of PaineWebber, 100% of the membership interests in the Acquisition
LLC, thereby acquiring the Acquisition LLC Properties. None of the Continuing
Investors has any direct or indirect interest in the Acquisition LLC or the
Acquisition LLC Properties. In connection with the refinancing of existing
mortgage debt on 1431 Harbor Bay Parkway, the Company has formed Harbor Bay,
LLC, a special-purpose limited liability company, of which Alexandria holds a
99% non-managing interest and QRS holds a 1% managing interest. In connection
with such refinancing, QRS will contribute 1431 Harbor Bay Parkway to Harbor
Bay, LLC. See "Formation and Structure" for a detailed discussion of the
Formation Transactions.

9
<PAGE>

The following diagram illustrates the structure and approximate ownership of
the Company prior to consummation of the Offering and the Formation
Transactions.

[GRAPH APPEARS HERE]

Chart depicting structure and approximate ownership of the Company prior
to consummation of the Offering and the Formation Transactions. Alexandria is
shown in center of chart with a notation that it owns five Properties. QRS is
shown below Alexandria, with a line indicating that Alexandria owns 1,000
shares (100%) of QRS Common Stock and that QRS owns seven Properties. Each of
Directors, Officers and Employees of Alexandria; Holdings; AEW; and Series U
Preferred Stockholders is shown in separate box above Alexandria, with share
ownership and percentage ownership noted as follows: Directors, Officers and
Employees of Alexandria, 12 shares of Series T Preferred Stock and 54,231
shares (49.7%) of common stock of Holdings (1); Holdings, 1,000 shares (100%)
of Common Stock; AEW, 27,500 shares of Series V Preferred Stock; and Series U
Preferred Stockholders, 220 shares of Series U Preferred Stock.
- --------
(1) See "Share Ownership--Certain Beneficial Ownership in Holdings." Excludes
the effect of shares issuable upon conversion or exchange of certain
convertible and exchangeable securities of Holdings currently outstanding.

10
<PAGE>

The following diagram illustrates the resulting structure and approximate
ownership of the Company upon consummation of the Offering and the Formation
Transactions.

[GRAPH APPEARS HERE]

Chart depicting resulting structure of the Company and the approximate
ownership of Alexandria upon consummation of the Offering and the Formation
Transactions. Alexandria is shown in center of chart with a notation that it
owns 5 Properties. Each of GSA-QRS, QRS and Acquisition LLC is shown below
Alexandria, with the number of Properties owned by each and the ownership of
each noted as follows: GSA-QRS (4), 1 Property, 99% non-managing interest
owned by Alexandria and 1% managing interest owned by QRS; QRS, 6 Properties,
1,000 shares (100%) of common stock owned by Alexandria; and Acquisition LLC
(5), 3 Properties, 99% non-managing interest owned by Alexandria and 1%
managing interest owned by QRS. Each of Directors, Officers and Employees of
Alexandria; Holdings; AEW; and Public Stockholders is shown in separate box
above Alexandria, with share ownership and percentage ownership noted as
follows: Directors, Officers and Employees of Alexandria, 209,615 shares (2%)
of Common Stock (2) and 54,231 shares (49.7%) of common stock of Holdings (1);
Holdings, 1,765,923 shares (17%) of Common Stock; AEW, 1,659,239 shares (16%)
of Common Stock; and Public Stockholders, 6,757,071 (65%) of Common Stock (3).
- --------
(1) See "Share Ownership--Certain Beneficial Ownership in Holdings." Excludes
the effect of shares issuable upon conversion or exchange of certain
convertible and exchangeable securities of Holdings currently outstanding.
(2) Excludes 900,000 shares reserved for issuance pursuant to the Company's
1997 Stock Option Plan (as defined in "Management--Benefit Plans"), of
which options to purchase 600,000 shares will be granted in connection with
the Offering.
(3) Includes approximately 7,354 shares of Common Stock to be issued upon
conversion of 220 shares of Series U Preferred Stock.
(4) In connection with a new $8.5 million mortgage loan on 1431 Harbor Bay
Parkway, QRS will contribute such Property to Harbor Bay, LLC.
(5) Upon consummation of the Offering, and as required by the LLC Agreement,
the Company will acquire 100% of the membership interests in the
Acquisition LLC from certain affiliates of PaineWebber. The Acquisition LLC
owns the three Acquisition LLC Properties.

11
<PAGE>

BENEFITS TO RELATED PARTIES

As a result of the Offering and the Formation Transactions, Holdings and the
officers and directors of the Company directly will realize an immediate
accretion in the net tangible book value of their investment in Alexandria of
$8.68 and $14.51 per share of Common Stock, respectively.

In connection with the Offering, officers, directors and certain employees of
the Company will be granted an aggregate of 152,615 shares of Common Stock.
Officers, directors and certain employees of the Company will also receive
options to purchase 57,000 shares of Common Stock pursuant to the Company's
existing stock option plan in substitution for previously granted Holdings
Stock Options (such stock options will be exercised in connection with the
Offering at a nominal exercise price, and thereafter no further stock options
will be issued under this plan). In addition, in connection with the Offering,
officers, directors and employees of the Company will be granted options to
purchase 600,000 shares of Common Stock at the initial public offering price
pursuant to the Company's 1997 Stock Option Plan. See "Formation and
Structure--Benefits to Related Parties." Options granted to officers, employee
directors and other employees of the Company under the 1997 Stock Option Plan
will vest ratably over a three-year period. Options granted to non-employee
directors under the 1997 Stock Option Plan will vest immediately upon the date
of grant.

In connection with the Offering, the Company will grant to Holdings customary
transferable registration rights with respect to the shares of Common Stock
held by it. See "Shares Eligible for Future Sale."

Holdings will receive $2.5 million from the proceeds of the Offering as
repayment of an advance made to the Company for general working capital
purposes. Such proceeds will be used by Holdings to repay loans from certain
stockholders of Holdings. See "Use of Proceeds" and "Formation and Structure--
Benefits to Related Parties."

Upon consummation of the Offering and the Formation Transactions, Bernardo
Capital, Inc. (a corporation of which Messrs. Gold, Kreitzer and Stone are
stockholders) will receive from Holdings approximately $517,000 as
reimbursement for certain expenses, including accrued salaries and benefits
paid to each of Messrs. Gold, Kreitzer and Stone, incurred in connection with
the formation of Holdings in 1993. These funds will be paid by Holdings, and no
proceeds of the Offering will be used for this purpose. See "Formation and
Structure--Benefits to Related Parties."

PaineWebber, the lead managing Underwriter of the Offering, and certain of
its affiliates, will receive material benefits from the Offering and the
Formation Transactions, including (i) a portion of the underwriting discounts
and commissions (which in the aggregate will be 6.5% of the gross proceeds of
the Offering) to be determined principally based on the number of Shares sold
and/or underwritten by PaineWebber, (ii) a fee for structural and advisory
services equal to 1% of the gross proceeds of the Offering (approximately $1.4
million), (iii) approximately $58.9 million of the net proceeds as
consideration for the sale of the Acquisition LLC to the Company and (iv)
$44.4 million of the net proceeds as repayment of amounts outstanding under the
Company's acquisition facility (the "PaineWebber Facility"). See "Use of
Proceeds," "Formation and Structure" and "Underwriting."

12
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the
Company.......................... 6,750,000 shares
Common Stock to be Outstanding
after the Offering(1)............ 10,392,131 shares
Use of Proceeds................... The net proceeds of the Offering will be
used as follows: (i) approximately $62.7
million to repay mortgage and other
indebtedness (including approximately $2.5
million of indebtedness to Holdings); and
(ii) approximately $58.9 million to acquire
the Acquisition LLC, as more fully
described in "Formation and Structure". See
"Use of Proceeds."
New York Stock Exchange Symbol.... "ARE"
</TABLE>
- --------
(1) Excludes 900,000 shares reserved for issuance pursuant to the Company's
1997 Stock Option Plan, of which options to purchase 600,000 shares will be
granted in connection with the Offering.

DISTRIBUTIONS

Distributions by the Company will be determined by the Board of Directors and
will be dependent upon a number of factors, including the federal income tax
requirement that a REIT must distribute annually at least 95% of its taxable
income. The Company intends to make regular quarterly distributions to the
holders of the Common Stock and initially to distribute annually approximately
88.6% of estimated cash available for distribution. The Company expects to pay
a pro rata distribution with respect to the period commencing upon consummation
of the Offering and ending on June 30, 1997.

Based on its estimated cash available for distribution, the Company initially
expects to make distributions of $1.60 per share on an annualized basis, or an
annual distribution rate of approximately 8.0%, based on the initial public
offering price of $20.00 per share. The Company currently intends to maintain
its initial distribution rate for the 12-month period following consummation of
the Offering, unless actual results of operations, economic conditions or other
factors differ materially from the assumptions used in its estimate. The
Company does not intend to reduce the expected distribution rate if the
Underwriters' over-allotment option is exercised. See "Risk Factors--Inability
to Sustain Distributions." Approximately 23.1% of the distributions anticipated
to be paid by the Company for the 12 months following the Offering are expected
to represent a return of capital for federal income tax purposes.

The Company's estimate of cash available for distribution after the Offering
is based upon pro forma FFO for the 12 months ended March 31, 1997. See
"Distributions" for information as to how this estimate was derived. The White
Paper defines FFO as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Management believes FFO is
helpful to investors as a measure of the performance of an equity REIT because,
along with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt and make capital expenditures.
The Company computes FFO in accordance with the standards established by the
White Paper, which may differ from the methodology for calculating FFO utilized
by other equity REITs, and, accordingly, may not be comparable to such other
REITs. Further, FFO does not represent amounts available for management's
discretionary use because of needed

13
<PAGE>

capital replacement or expansion, debt service obligations, or other
commitments and uncertainties. FFO should not be considered as an alternative
to net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make distributions. The Company believes that its
estimate of cash available for distribution constitutes a reasonable basis for
setting the initial distribution; however, no assurance can be given that the
estimate will prove accurate or that actual distributions will not vary
significantly from the expected distributions. See "Distributions."

TAX STATUS OF THE COMPANY

The Company intends to make an election to be taxed as a REIT under sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1996. Skadden, Arps, Slate,
Meagher & Flom LLP has issued an opinion as to the Company's qualification as a
REIT. For each taxable year that the Company qualifies as a REIT, it will
generally not be subject to federal income tax to the extent it distributes in
such year 95% of its net taxable income to its stockholders. Notwithstanding
the Company's qualification as a REIT, the Company may be subject to certain
federal, state and local taxes on its income and property. See "Risk Factors--
Adverse Consequences of Failure to Qualify as a REIT" and "Federal Income Tax
Considerations."

SUMMARY FINANCIAL INFORMATION

The following pro forma and historical information should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements and notes thereto of the Company included
elsewhere in this Prospectus. The selected historical financial information of
the Company at December 31, 1996 and 1995, for the years ended December 31,
1996 and 1995, and for the period October 27, 1994 (inception) through December
31, 1994, has been derived from the historical consolidated financial
statements of the Company audited by Ernst & Young LLP, independent auditors,
whose report with respect thereto is included elsewhere in this Prospectus. The
summary financial and operating information for the three months ended March
31, 1997 and March 31, 1996 has been derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus.

14
<PAGE>

SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
--------------------------------- -------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1997 1997 1996 1996 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental................. $ 6,702 $ 5,175 $2,090 $ 18,878 $ 12,941 $ 8,020 $ 834
Tenant recoveries...... 1,915 1,897 486 5,913 4,169 1,699 87
Other.................. 128 89 34 458 563 204 90
---------- --------- ------ ---------- --------- ------- -------
Total revenue........... 8,745 7,161 2,610 25,249 17,673 9,923 1,011
Expenses:
Rental operations...... 1,933 1,830 554 6,471 4,356 2,228 252
General and
administrative........ 725 583 406 2,900 1,972 1,608 1,016
Special bonus(1)....... 353 353 -- -- -- -- --
Stock grant and stock
option
compensation(2)....... 394 394 -- -- -- -- --
Post retirement
benefit............... 632 632 -- 438 438 -- --
Interest............... 1,192 2,509 918 3,836 6,327 3,553 328
Acquisition LLC
financing costs(4).... -- -- -- -- -- -- --
Depreciation and
amortization.......... 1,281 1,003 413 3,521 2,405 1,668 63
---------- --------- ------ ---------- --------- ------- -------
Total expenses.......... 6,510 7,304 2,291 17,166 15,498 9,057 1,659
Income (loss) from
operations............. 2,235 (143) 319 8,083 2,175 866 (648)
Charge in lieu of
taxes.................. -- -- -- -- -- 105 --
---------- --------- ------ ---------- --------- ------- -------
Net income (loss)....... $ 2,235 $ (143) $ 319 $ 8,083 $ 2,175 $ 761 $ (648)
========== ========= ====== ========== ========= ======= =======
Net income allocated to
preferred
stockholders........... $ -- $ 1,577 $ -- $ -- $ 1,590 $ -- $ --
========== ========= ====== ========== ========= ======= =======
Net income (loss)
allocated to common
stockholders........... $ 2,235 $ (1,720) $ 319 $ 8,083 $ 585 $ 761 $ (648)
========== ========= ====== ========== ========= ======= =======
Net income (loss) per
pro forma share of
Common Stock........... $ 0.22 $ (0.04) $ 0.78 $ 0.60
========== ========= ========== =========
Pro forma shares of
Common Stock
outstanding(5)......... 10,392,131 3,642,131 10,392,131 3,642,131
========== ========= ========== =========
Supplemental net income
per share information:
Net income per share
reflecting the pro
forma effects of the
Offering and repayment
of debt(6)............. $ 0.17 $ 0.71
========= =========
Additional pro forma net
income per share
information:
Pro forma net income per
share reflecting the
pro forma effects of
the Offering and the
purchase of the
Acquisition LLC
Properties(7).......... $ 0.19 $ 0.39
========== ==========
BALANCE SHEET DATA (AT
PERIOD END):
Rental properties--net
of accumulated
depreciation........... $ 198,984 $ 147,315 $ 146,960 $54,353 $54,366
Total assets............ 212,653 161,690 160,392 58,702 56,600
Mortgage loans payable
and unsecured lines of
credit................. 56,362 115,315 113,182 40,894 39,164
Total liabilities....... 61,913 123,315 120,819 42,369 40,119
Mandatorily redeemable
Series V Preferred
Stock.................. -- 25,929 25,042 -- --
Stockholders' equity.... 150,740 12,446 14,531 16,333 16,481
</TABLE>

15
<PAGE>

SUMMARY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
-------------------------------- -------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1997 1997 1996 1996 1996 1995 1994
--------- ---------- ---------- --------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net income(3)(4)........ $ 2,235 $ (143) $ 319 $ 8,083 $ 2,175 $ 761 $ (648)
Add:
Special bonus(1)....... 353 353 -- -- -- -- --
Stock grant and stock
option
compensation(2)....... 394 394 -- -- -- -- --
Accrual of post-
retirement
benefit(8)............ 632 632 -- 438 438 -- --
Depreciation and
amortization of
Properties,
improvements and
leasing costs......... 1,281 1,003 413 3,521 2,405 1,668 63
--------- --------- ------- --------- --------- ------- --------
Funds from
Operations(9)......... $ 4,895 $ 2,239 $ 732 $ 12,042 $ 5,018 $ 2,429 $ (585)
========= ========= ======= ========= ========= ======= ========
Cash flows from
operating activities... $ -- $ 3,178 $ 972 $ -- $ (1,646) $ 355 $ (1,024)
Cash flows from
investing activities... -- (1,319) (86) -- (94,900) (1,554) (29,924)
Cash flows from
financing activities... -- (805) (52) -- 97,323 927 32,139
Number of properties
owned at period end.... 15 12 4 15 12 4 4
Rentable square feet of
properties owned at
period end............. 1,455,267 1,031,070 313,042 1,455,267 1,031,070 313,042 313,042
Occupancy of properties
owned at period end.... -- 97% 96% -- 97% 96% 88%
</TABLE>
- --------
(1) Represents a $353,000 special bonus awarded to an officer of the Company in
connection with the Offering.

(2) Represents an accrual for $394,000 of non-recurring, non-cash compensation
expense relating to issuance of Holdings Stock Options. In connection with
the Offering, the holders of such options will receive options to purchase
shares of Common Stock of the Company in substitution therefor. These
substitute options will be exercised in connection with the Offering.

(3) In connection with the Offering, officers, directors and certain employees
will be granted an aggregate of 152,615 shares of the Company's Common
Stock. In addition, officers, directors and certain employees will receive
options to purchase 57,000 shares of Company Common Stock in substitution
for previously granted Holdings Stock Options. The Company will recognize
an additional $3,767,000 of compensation expense upon the granting of such
stock and options. This additional expense is not reflected in net income
for any historical or pro forma period set forth above but will be
recognized when the transaction is completed.

(4) In connection with the Offering, the Company will acquire the membership
interests in the Acquisitions LLC for $58,857,000, which exceeds the
purchase price paid by the Acquisition LLC for the Acquisition LLC
Properties by $7,188,000. This difference will be accounted for as a
financing cost and recognized when the transaction is completed.

(5) Pro forma shares of Common Stock outstanding on an historical net income
basis include all shares outstanding after giving effect to the conversion
of all series of Preferred Stock, the 1,765.923 to one stock split, the
issuance of the stock grants and exercise of the substitute stock options.

Pro forma shares of Common Stock outstanding on a pro forma basis include
all historical pro forma shares outstanding after giving effect to the
Offering. Shares issued for the acquisition of 1330 Piccard Drive and 14225
Newbrook Drive are assumed to be outstanding from the beginning of the
periods presented. However, no revenues and expenses have been included for
these Properties for the period prior to their acquisition by the
Acquisition LLC.

16
<PAGE>

(6) Supplemental net income per share information is included below:

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
The following table sets
forth the effects of the
Offering and the
repayment of the
Company's debt with the
proceeds of the Offering:
Historical net (loss)
income of the Company.. $ (143) $ 2,175
Pro forma decrease in
interest expense
associated with the
repayment of debt...... 1,351 2,830
---------------------- ----------------------
Net income of the
Company adjusted for
repayment of debt ..... $ 1,208 $ 5,005
====================== ======================
Common Stock outstanding
on an historical
basis.................. 3,642,131 3,642,131
Common Stock issued in
the Offering for
repayment of debt...... 3,416,022 3,416,022
---------------------- ----------------------
Common Stock
outstanding--pro
forma.................. 7,058,153 7,058,153
====================== ======================
Net income per share
reflecting the pro
forma effects of the
Offering and repayment
of debt................ $ 0.17 $ 0.71
====================== ======================

(7) Additional pro forma net
income per share
information is included
below:

The following table sets
forth the pro forma
effect of the purchase of
the Acquisition LLC with
proceeds from the
Offering:
Historical net (loss)
income of the Company.. $ (143) $ 2,175
Pro forma net income of
the Acquisition LLC.... 1,447 539
---------------------- ----------------------
Pro forma net income of
the Company and the
Acquisition LLC........ $ 1,304 $ 2,714
====================== ======================
Common Stock outstanding
on an historical
basis.................. 3,642,131 3,642,131
Common Stock issued in
the Offering to
purchase the
Acquisition LLC
Properties(a).......... 3,267,144 3,267,144
---------------------- ----------------------
Common Stock
outstanding--pro
forma.................. 6,909,275 6,909,275
====================== ======================
Pro forma net income per
share reflecting the
pro forma effects of
the Offering and
purchase of the
Acquisition LLC
Properties............. $ 0.19 $ 0.39
====================== ======================
</TABLE>

Note (a) Gives effect to all shares issued to purchase the Acquisition
LLC Properties including the shares to be issued for the acquisition
of 1330 Piccard Drive and 14225 Newbrook Drive as if they were
outstanding for the entire period presented. However, no revenues and
expenses have been included for these two Properties for the period
prior to their acquisition by the Acquisition LLC.

(8) This adjustment relates solely to the elimination of a non-cash accrual of
a one-time post-retirement benefit for an officer of the Company.

(9) The White Paper defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Management believes FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. The Company computes FFO in
accordance with standards established by the White Paper, which may differ
from the methodology for calculating FFO utilized by other equity REITs,
and, accordingly, may not be comparable to such other REITs. Further, FFO
does not represent amounts available for management's discretionary use
because of needed capital replacement or expansion, debt service
obligations, or other commitments and uncertainties. See notes (9) and (11)
to the table under the caption "Distributions" and the notes to the
Company's historical financial statements. FFO should not be considered as
an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make distributions.

17
<PAGE>

RISK FACTORS

An investment in the Shares involves various risks. Prospective investors
should carefully consider the following information in conjunction with the
other information contained in this Prospectus before making a decision to
purchase the Shares.

LACK OF INDUSTRY DIVERSIFICATION; RELIANCE ON LIFE SCIENCE INDUSTRY TENANTS

The Company's strategy is to invest in Life Science Facilities.
Consequently, the Company is subject to the risks associated with an
investment in real estate in the Life Science Industry, and is subject to the
risks generally associated with investment in a single industry. Accordingly,
the effects on cash available for distribution to the Company's stockholders
may be more pronounced than if the Company had diversified investments.
Although laboratory facilities typically are generic in nature, certain
facilities may be better suited for particular Life Science Industry tenants
and could require modification prior to or at the commencement of a lease term
if the property has to be released to another Life Science Industry tenant.
Further, such facilities may not be suitable for lease to traditional office
tenants.

ENVIRONMENTAL MATTERS. Life Science Industry tenants, including certain of
the Company's tenants, engage in various research and development activities
involving the controlled use of hazardous materials, chemicals, biological and
radioactive compounds. The Company and such tenants are subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Although
the Company believes that the tenants' activities involving such materials
comply in all material respects with applicable laws and regulations, the risk
of contamination or injury from these materials cannot be completely
eliminated. In the event of such contamination or injury, the Company could be
held liable for any damages that result, and any such liability could exceed
the Company's resources and its environmental remediation coverage. See "--
Possible Environmental Liabilities" and "The Properties--Environmental
Matters."

UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS AND FUNDING. The products
of certain Life Science Industry tenants, including certain of the Company's
tenants, typically require regulatory approval by domestic or foreign
governmental agencies before they can be marketed and sold. The process of
obtaining such approvals is costly and time-consuming and is subject to
unanticipated delays. There can be no assurance that required approvals for
any of such products will be granted. Any failure to obtain or any delay in
obtaining such approvals could adversely affect the ability of a tenant to
market and sell its products successfully, thereby adversely affecting its
ability to generate revenues and to make lease payments to the Company.
Furthermore, approval of a pharmaceutical product is subject to the
requirement that the manufacturer's quality control and manufacturing
procedures conform to current Good Manufacturing Practices ("GMP"), which must
be followed at all times. The FDA strictly enforces GMP requirements through
periodic unannounced inspections, and there can be no assurance that the FDA
will determine that the facilities and manufacturing procedures of any of the
Company's tenants who manufacture pharmaceutical products will conform to GMP
requirements. Additionally, a manufacturer of pharmaceutical products must
pass a preapproval inspection of its manufacturing facilities by the FDA
before obtaining marketing approval. Failure to comply with applicable
regulatory requirements may result in penalties such as restrictions on a
product's marketing or withdrawal of a product from the market. In addition,
many approved products are subject to continuing regulation. Regulation could
result in limitations or restrictions on a tenant's ability to utilize its
technology, thereby adversely affecting such tenant's ability to generate
revenues and to make lease payments to the Company. Certain of the Company's
tenants are also subject to regulation under the Occupational Safety and
Health Act, federal restrictions on technology transfer, import, export and
customs regulations, and other federal, state and local regulations. In
addition, certain of the Company's tenants receive significant funding from
federal, state and local governments. If any of such funding were decreased or
discontinued, the affected tenant may experience difficulty meeting its
obligations under its lease. See "--Dependence on Tenants."

DEPENDENCE ON REIMBURSEMENT. The healthcare industry in the United States is
undergoing significant changes, resulting from political, economic and
regulatory influences. Successful commercial sales of the

18
<PAGE>

products of certain of the Company's tenants may depend in part on the
availability of reimbursement to consumers from third-party payors, such as
government and private insurance plans, that may be affected by changes in the
healthcare industry. There can be no assurance that adequate third-party
reimbursement will be available for the products of the Company's tenants. If
adequate reimbursement is not provided by government and third-party payors
for the products or services of the Company's tenants, such tenants' business
and ability to generate revenues and make lease payments to the Company could
be adversely affected. Consequently, the Company's ability to make
distributions to its stockholders could similarly be adversely affected.

DEPENDENCE ON TENANTS

The Company's revenues are derived primarily from rental payments under its
leases. Therefore, if a significant tenant failed to make rental payments
under its lease, the Company's financial condition and its ability to make
distributions to stockholders could be adversely affected. While the Company
evaluates the creditworthiness of its tenants based upon a due diligence
review of available financial and other pertinent information, there can be no
assurances that any such tenant will not default in the payment of rent under
its lease. In addition, U.S. government tenants are subject to annual
appropriations, and defaults under leases with such tenants are governed by
federal statute and not state eviction or rent deficiency laws. At April 30,
1997, the leases with U.S. government tenants at the Properties accounted for
approximately 10.9% of the Company's aggregate Annualized Base Rent. The
Company's leases with U.S. government tenants at each of 1431 Harbor Bay
Parkway in Alameda, California and 1413 Research Boulevard in Rockville,
Maryland provide that the government tenant may terminate the lease in the
event of a default by the Company or the landlord thereunder that continues
for a stated period.

To the extent the Company is dependent on rental payments from a limited
number of tenants, the inability of any single tenant to make its lease
payments could adversely affect the Company and its ability to make
distributions to stockholders. The Company currently has approximately 31
leases with a total of approximately 26 tenants. Eight of the Properties are
currently single-tenant Properties, although the Company believes that all
such Properties are capable of being converted to use by multiple tenants. At
April 30, 1997, three of the Company's tenants, American Medical Laboratories,
Inc., the Fred Hutchinson Cancer Research Center and Agouron Pharmaceuticals,
Inc., accounted for approximately 37.5% of the Company's aggregate Annualized
Base Rent, or approximately 15.8%, 13.3% and 8.4%, respectively.

No assurance can be given that a lessee will exercise any option to renew
its lease upon the expiration of the initial term or that upon expiration or
termination of a lease the Company will be able to locate a qualified
replacement tenant. Consequently, the Company could lose the cash flow from
such property and, in order to prevent a foreclosure, the Company might be
required to divert cash flow generated by other properties to meet mortgage
payments, if any, and pay other expenses associated with owning the property
with respect to which the expiration or termination occurred. Leases at the
Properties representing approximately 0.2%, 7.6% and 13.4% of Annualized Base
Rent will expire in the years 1997, 1998 and 1999, respectively. See "The
Properties--Lease Expirations." In addition, the Company may enter into or
acquire leases for properties that are specially suited to the needs of a
particular tenant. Such properties may require renovations, tenant
improvements or other concessions in order to lease it to another tenant if
the initial lease is terminated or not renewed. See "--Lack of Industry
Diversification; Reliance on Life Science Industry Tenants."

GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CERTAIN MARKETS

The Properties are located in California (in the San Diego and San Francisco
Bay areas), Seattle, Washington and suburban Washington D.C. The Company also
has identified Boston/Cambridge and the New York/New Jersey and suburban
Philadelphia areas as target markets, consistent with its growth strategy. As
a result of this geographic concentration, the Company's performance, its
ability to make distributions to stockholders and the value of its properties
are dependent upon the performance of the Life Science Industry and on
economic conditions in these markets, including local real estate conditions
and competition. There can be no assurance that these markets will continue to
grow or will remain favorable to the Life Science Industry. The performance of
the Life Science Industry and the economy in general in each geographic market
in which the

19
<PAGE>

Company owns or acquires properties may affect occupancy, market rental rates
and expenses and, consequently, may affect the Company's performance and the
value of its properties.

CONFLICTS OF INTEREST

In connection with the Formation Transactions, Holdings and AEW, as well as
officers (Messrs. Sudarsky, Marcus, Gold, Nelson, Kreitzer, Stone and Ciruzzi)
and directors (Messrs. Sudarsky, Marcus, Gold, Elmaleh, Mehta, Petrone and
Solomon) of the Company, will realize certain benefits that will not be
received by other persons. See "Formation and Structure--Benefits to Related
Parties." Messrs. Sudarsky, Marcus and Gold are also officers of Holdings and
Messrs. Sudarsky, Marcus, Gold and Elmaleh are directors of Holdings. In
connection with the Offering, officers, directors and certain employees of the
Company will be granted an aggregate of 152,615 shares of Common Stock.
Officers, directors and certain employees of the Company also will receive
options to purchase 57,000 shares of Common Stock under the 1996 Plan in
substitution for previously granted Holdings Stock Options (such stock options
will be exercised in connection with the Offering at a nominal exercise price,
and thereafter no further stock options will be issued under the 1996 Plan).
In addition, officers, directors and employees of the Company will be granted
options to purchase 600,000 shares of Common Stock at the initial public
offering price pursuant to the 1997 Stock Option Plan.

In connection with the conversion of Series U Preferred Stock into shares of
Common Stock, certain officers, directors and affiliates of the Company (and
members of their immediate families) will receive an aggregate of
approximately 7,354 shares of Common Stock. In connection with the conversion
of the Series V Preferred Stock AEW will receive an aggregate of 1,659,239
shares of Common Stock.

Because certain officers, directors and affiliates of the Company were
involved in structuring the terms of these transactions, they had the ability
to influence the type and level of benefits they will receive. See "Formation
and Structure." As a result, the type and level of benefits these persons will
receive may have been different if they had not participated in structuring
the terms. These persons may have interests that conflict with the interests
of persons acquiring Shares in the Offering. The net tangible book value of
officers' and directors' and Holdings' initial investment in the Company upon
consummation of the Offering and the Formation Transactions will increase by
approximately $3.0 million and $15.3 million, respectively, based on the
difference between the net tangible book value prior to the Offering and the
net tangible book value subsequent to the Offering.

BENEFITS TO MANAGING UNDERWRITER

PaineWebber and certain of its affiliates will receive material benefits
from the Offering and certain of the Formation Transactions, including (i) a
portion of the underwriting discounts and commissions (which in the aggregate
will be 6.5% of the gross proceeds of the Offering) to be determined
principally based on the number of Shares sold and/or underwritten by
PaineWebber, (ii) a fee for structural and advisory services equal to 1% of
the gross proceeds of the Offering (approximately $1.4 million), (iii)
approximately $58.9 million of the net proceeds as consideration for the sale
of the Acquisition LLC, which owns the three Acquisition LLC Properties that
were originally purchased by the Acquisition LLC for approximately $51.7
million, and (iv) $44.4 million of the net proceeds as repayment of amounts
outstanding under the PaineWebber Facility. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Formation and Structure" and
"Underwriting." In accordance with Rules 2710(c)(8) and 2720(c)(3) of the
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"Conduct Rules"), Lehman Brothers Inc. is assuming the responsibilities of
acting as "qualified independent underwriter" and has recommended the maximum
initial public offering price of the Shares in compliance with the
requirements of the Conduct Rules. Lehman Brothers Inc. has performed due
diligence investigations and has reviewed and participated in the preparation
of this Prospectus and the Registration Statement of which this Prospectus
forms a part (the "Registration Statement"). The initial public offering price
of the Shares is no higher than the price recommended by the "qualified
independent underwriter." See "Underwriting."

20
<PAGE>

RAPID GROWTH

The Company is currently experiencing a period of rapid growth. As the
Company acquires additional properties, it will be subject to risks associated
with managing new properties, including lease-up and tenant retention. In
addition, the Company's ability to manage its growth effectively will require
it to successfully integrate new acquisitions into its existing management
structure. No assurances can be given that the Company will be able to succeed
with such integration or effectively manage additional properties or that
newly acquired properties will perform as expected. Additionally, there can be
no assurance that the Company will be able to maintain its current rate of
growth in the future.

LIMITED OPERATING HISTORY

Upon consummation of the Offering and the Formation Transactions, the
Company will own 15 Properties, including the Acquisition LLC Properties,
consisting of approximately 1.5 million rentable square feet of office and
laboratory space. All of the Properties have been under the Company's
management for less than three years, and a substantial majority of the
Properties have been owned for less than one year. The Properties may have
characteristics or deficiencies unknown to the Company that could affect such
Properties' valuation or revenue potential. There can be no assurance that the
operating performance of the Properties will not decline under the Company's
management.

EXPERIENCE OF MANAGEMENT

Although certain of the Company's officers and directors have extensive
experience in the acquisition, leasing, operation, financing and development
of real properties, prior to commencement of the Company's operations, no
officer had significant experience in operating a business in accordance with
the requirements for maintaining qualification as a REIT under the Code. See
"--Adverse Consequences of Failure to Qualify as a REIT."

REAL ESTATE FINANCING

DEBT FINANCING AND EXISTING DEBT MATURITIES. The Company is subject to the
risks normally associated with debt financing, including the risk that the
Company's cash flow from operations will be insufficient to meet required
payments of principal and interest, that existing indebtedness will not be
able to be refinanced or extended, and that the terms of any such refinancing
will not be as favorable as the terms of existing indebtedness. Upon
consummation of the Offering and the Formation Transactions, the Company will
have outstanding mortgage indebtedness of approximately $55.2 million, of
which approximately $18.3 million will be secured by 3535 General Atomics
Court and 3565 General Atomics Court; $8.5 million will be secured by 1431
Harbor Bay Parkway; and two mortgages of approximately $21.5 million and $6.9
million will be secured by 1102 and 1124 Columbia Street. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." In the event of a default by the Company,
the lender may be able to foreclose on or otherwise transfer such Properties
to the mortgagee, resulting in a loss of income and asset value to the
Company. As a result, the Company's financial condition and its ability to
make distributions to stockholders may be adversely affected.

The Credit Facility will contain conditions to borrowing and cross-default
provisions. The conditions to borrowing will include compliance with customary
financial covenants and restrictions on certain activities, such as incurring
indebtedness, making investments and distributions to stockholders, as well as
a requirement to maintain a pool of unencumbered assets approved by the
lenders. Under the cross default provisions, a default under the terms of any
Company indebtedness in excess of $5 million, with the exception of non-
recourse debt, could result in a default under the Credit Facility and could
lead to acceleration of the outstanding indebtedness under the Credit
Facility. Similarly, under the terms of the $6.9 million mortgage secured by
1102 and 1124 Columbia Street, a default under the terms of the $21.5 million
mortgage secured by the same Property could result in a default under the $6.9
million mortgage. Upon consummation of the Offering and the Formation
Transactions, the Company will have approximately $1.0 million principal
amount of indebtedness outstanding under the Credit Facility.

21
<PAGE>

The Company has financed the acquisition of the Properties in part, and may
finance future investments, with debt obligations that provide for the
repayment of principal in a lump-sum or "balloon" payment at maturity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources." In addition, certain of the
Company's lenders may insist on the right to demand repayment prior to the
maturity date of a loan if certain events of default occur. The ability to
repay indebtedness at maturity or otherwise may depend upon the ability of the
Company either to refinance or extend such indebtedness, to repay such
indebtedness with proceeds of other capital transactions, such as the issuance
of equity capital, or to sell properties. There can be no assurance that such
refinancing or extension will be available on reasonable terms or at all, that
additional capital will be issued, or that a sale of property will occur. The
inability to repay such indebtedness could adversely affect the financial
condition of the Company and its ability to make distributions to
stockholders.

REQUIREMENT OF ADDITIONAL FINANCING. The Company's ability to acquire or
develop properties is subject to the Company's ability to obtain debt or
equity financing. The Company could be delayed or prevented from acquiring,
structuring and closing desirable investments by an inability to obtain
financing on acceptable terms. In addition, the issuance of additional shares
of capital stock to obtain financing for the acquisition of additional
properties could result in a dilution of ownership for the then existing
stockholders. The Company has adopted a policy to incur debt only if, upon
such incurrence, its debt to total market capitalization ratio would not
exceed 50%. If the Company is unable to obtain additional equity financing,
and the incurrence of additional debt would cause the Company's debt to total
market capitalization ratio to exceed 50%, the Company may have to revise its
existing policy to fund acquisitions of additional properties. See "--No
Limitation on Debt."

RISING INTEREST RATES. Upon consummation of the Offering and the Formation
Transactions, the Company will have approximately $6.9 million of variable
rate indebtedness outstanding which the Company anticipates converting into a
fixed rate loan in August 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, borrowings under the Credit Facility (approximately
$1.0 million of which will be outstanding upon consummation of the Offering
and the Formation Transactions) will bear interest at a variable rate, as may
other indebtedness incurred by the Company in the future. Accordingly,
increases in market interest rates could increase the Company's debt service
requirements, which could adversely affect the financial position of the
Company and its ability to make distributions to stockholders. In addition,
the Company may enter into swap agreements or other hedging transactions to
further limit its exposure to rising interest rates as appropriate and cost
effective, although there can be no assurance that it will be able to do so on
terms acceptable to the Company. Swap agreements or other hedging transactions
also may expose the Company to the risk that the counterparty may not perform,
which could cause the Company to lose the benefits of the hedging
transactions.

ACQUISITION AND RENOVATION

The success of the Company is dependent in part upon its ability to acquire
additional properties on satisfactory terms. Moreover, the acquisition of Life
Science Facilities generally involves higher per square foot acquisition
prices than traditional suburban office properties. If debt or equity
financing were not available on acceptable terms, further acquisitions or
development activities may be curtailed, and the Company's ability to make
distributions to its stockholders may be adversely affected. There is also a
risk that the Company will not be able to acquire properties that meet the
Company's acquisition criteria.

In addition, the acquisition of real estate entails risks that investments
may fail to perform in accordance with expectations (including projected
occupancy and rental rates), that the Company may overpay for its properties,
or that the Company may underestimate the cost of improvements required to
bring an acquired property up to standards established for the market position
intended for that property. To the extent that the Company might otherwise
benefit from the conversion of a single tenant facility into a multi-tenant
facility, the cost of such conversion may be substantial and the Company may
deem such conversion to be impracticable. Moreover, although the costs
associated with tenant-specific improvements are generally borne by the
tenant, such improvements to Life Science Facilities typically involve higher
costs per square foot than similar improvements to office space, and there can
be no assurance that all such costs will be borne by tenants in the

22
<PAGE>

future. In addition, there are general investment risks associated with any
new real estate investment. See "--Real Estate Investment."

REAL ESTATE INVESTMENT

The Company's investments in real property are subject to varying degrees of
risk, including risks common to commercial properties in general and risks
specific to the Company.

VARIABILITY OF REVENUES AND EXPENSES. The yields the Company receives from
equity investments in real estate depend in large part on the amount of
revenue generated and expenses incurred. If the Company's properties do not
generate revenues sufficient to meet operating expenses, including debt
service and other capital expenditures, the Company may have to borrow
additional amounts to cover fixed costs and cash flow needs, and the Company's
ability to make distributions to its stockholders could be adversely affected.
The revenues from and the value of the Company's properties may be adversely
affected by a number of factors, including the national and local economic
climate; real estate conditions in the Company's markets; the Company's
ability to provide adequate management, maintenance and insurance; and
increased operating costs (including real estate taxes and utilities).

Approximately 80% of the Company's leases (on a square footage basis) are
triple net leases. To the extent that the Company's lease for a property is
not a triple net lease, the Company will have greater expenses associated with
that property and will bear some or all of the risk of any increase in such
expenses (whether due to inflation or other factors), unless the lease
provides for a rent adjustment based on escalations in operating expenses. In
addition, certain significant expenditures associated with the Company's
investments (such as mortgage payments, if any, real estate taxes, insurance
and maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investment. If a property is mortgaged to secure
payment of indebtedness, and if the Company is unable to meet its mortgage
payments, a loss could be sustained as a result of foreclosure on the property
or the exercise of other remedies by the mortgagee. Finally, real estate
values are also affected by the cost of compliance with government regulation,
including zoning and tax laws, interest rate levels and the availability of
financing.

COST OF IMPROVEMENTS. The Company's properties contain generic
infrastructure improvements (such as reinforced concrete floors, upgraded roof
loading capacity, heavy-duty HVAC systems and laboratory benches) that are
more capital intensive than other property types. While the Company has
historically been able to reflect the additional investment in generic
infrastructure improvements in higher rental rates, there can be no assurances
that the Company will be able to continue to do so in the future.

BANKRUPTCY OF TENANTS. The financial failure of one of the Company's tenants
could cause the tenant to become subject to a case under Title 11 of the U.S.
Code (the "Bankruptcy Code"). Under the Bankruptcy Code, a tenant has the
option of assuming (continuing) or rejecting (terminating) an unexpired lease.
If the tenant assumes its lease with the Company, the tenant must cure all
defaults under the lease and provide the Company with adequate assurance of
its future performance under the lease. If the tenant rejects the lease, the
Company may experience a reduction in cash flow, and the Company's claim for
breach of the lease would (absent collateral securing the claim) be treated as
a general unsecured claim. The amount of the claim would be capped at the
amount owed for unpaid pre-petition lease payments unrelated to the rejection,
plus the greater of one year's lease payments or 15% of the remaining lease
payments payable under the lease (but not to exceed the amount of three years'
lease payments). Although the Company has not experienced material losses from
tenant bankruptcies, no assurance can be given that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
assume their leases and continue to make rental payments in a timely manner.
If tenant leases are not assumed following bankruptcy, the Company's financial
condition and its ability to make distributions to its stockholders may be
adversely affected.

EXPANSION AND DEVELOPMENT. The Company intends to pursue internal growth
through the expansion of existing facilities that are fully leased and the
conversion of existing office space to higher rent generic laboratory

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space. The Company is currently evaluating expansion and conversion
opportunities at several of its Properties. In addition, although the Company
currently intends to emphasize acquisitions over development, the Company
intends to pursue selective build-to-suit and retrofit development projects
where it expects to achieve investment returns that will equal or exceed its
returns on acquisitions. The Company is currently evaluating certain
development opportunities.

The Company's expansion and development activities subject the Company to
risks generally related to development and redevelopment projects, including
possible delays in construction, the cost of materials, financing
availability, volatility in interest rates, labor availability, the timing of
the commencement of rental payments and other property development
uncertainties. In addition, such activities, regardless of whether they are
ultimately successful, typically require a substantial portion of management's
time and attention, and are subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations.

ILLIQUIDITY OF INVESTMENTS. The illiquidity of the Company's investments
will limit the ability of the Company to vary its portfolio promptly in
response to changes in economic or other conditions. There can be no assurance
that the Company will be able to dispose of an investment when it finds
disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of the Company's investment. In
addition, the Code limits the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell
properties without adversely affecting distributions to stockholders.

COMPETITION FOR INVESTMENT OPPORTUNITIES. Management believes that the
Company will be the first publicly traded entity focusing primarily on the
acquisition, management, expansion and selective development of Life Science
Facilities. However, various entities, including insurance companies, pension
and investment funds, partnerships, developers, investment companies and other
REITs invest in Life Science Facilities and therefore compete for investment
opportunities with the Company. Many of these entities have substantially
greater financial resources than the Company and may be able to accept more
risk than the Company can prudently manage, including risks with respect to
the creditworthiness of a tenant or the geographic proximity of its
investments. Although management believes that it has been able to maximize
returns on acquisitions as a result of its expertise in understanding the real
estate needs of Life Science Industry tenants, its ability to identify and
acquire those properties with generic laboratory infrastructure that appeal to
a wide range of Life Science Industry tenants, and its expertise in
identifying and evaluating Life Science Industry tenants, in the future,
competition from these entities may reduce the number of suitable investment
opportunities offered to the Company or increase the bargaining power of
property owners seeking to sell.

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

Qualification as a REIT involves the application of highly technical and
complex provisions of the Code, for which there are only limited judicial or
administrative interpretations, and the determination of various factual
matters and circumstances not entirely within the Company's control. Although
the Company believes that it has operated since January 1, 1996 in a manner so
as to qualify as a REIT, no assurance can be given that the Company is or will
remain so qualified. For example, under the REIT provisions of the Code, if
rent attributable to personal property, leased in connection with real
property, is greater than 15% of the total rent received under any particular
lease, then all of the rent attributable to such personal property will
constitute non-qualifying income for purposes of the 75% and 95% gross income
tests. The determination of whether an item of property constitutes real
property or personal property under the REIT provisions of the Code is subject
to both legal and factual considerations and, as such, is subject to differing
interpretations. Counsel has advised the Company with respect to the legal
considerations underlying such determination. After consulting with counsel
and considering such advice, the Company has reviewed its properties and has
determined that rents attributable to personal property do not exceed 15% of
the total rent with respect to any particular lease. Due to the specialized
nature of the Company's properties, there can be no assurance that the
Internal Revenue Service (the "IRS") will not assert that the rent
attributable to personal property with respect to a particular lease is
greater than 15% of the total rent with respect to such lease. If the amount
of any such non-qualifying income, together with other

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<PAGE>

non-qualifying income, exceeds 5% of the Company's taxable income, the Company
may fail to qualify as a REIT. See "Federal Income Tax Considerations--
Taxation of the Company--Income Tests." In addition, although the Company is
not aware of any pending tax legislation that would adversely affect the
Company's ability to operate as a REIT, no assurance can be given that new
legislation, regulations, administrative interpretations or court decisions
will not change the tax laws or interpretations thereof with respect to
qualification as a REIT or the federal income tax consequences of such
qualification.

The Company has received an opinion of Skadden, Arps, Slate, Meagher and
Flom LLP, tax counsel to the Company, concerning the qualification of the
Company as a REIT. In rendering this opinion, Skadden, Arps, Slate, Meagher &
Flom LLP has relied on certain assumptions and representations by the Company
as to factual matters (including representations of the Company concerning,
among other things, its business and properties, the amounts of rents
attributable to personal property and other items regarding the Company's
ability to meet the various requirements for qualification as a REIT) and on
opinions of local counsel with respect to matters of local law. The opinion is
based upon facts, representations and assumptions as of its date and Skadden,
Arps, Slate, Meagher & Flom LLP will have no obligation to advise holders of
Common Stock of any subsequent change in the matters stated, represented or
assumed or any subsequent change in applicable law. No assurance can be given
that the Company has met or will continue to meet these requirements in the
future, and a legal opinion is not binding on the IRS.

If in any taxable year the Company fails to qualify as a REIT, the Company
would not be allowed a deduction for distributions to stockholders in
computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. As a result of the additional tax liability, the
Company might need to borrow funds or liquidate certain investments in order
to pay the applicable tax and the funds available for investment or
distribution to the Company's stockholders would be reduced for each of the
years involved. In addition, the Company would no longer be required by the
Code to make any distributions. Although the Company currently intends to
operate in a manner designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Company to
fail to qualify as a REIT or may cause the Board of Directors to revoke the
REIT election. See "Federal Income Tax Considerations."

INFLUENCE OF CERTAIN STOCKHOLDERS

Upon consummation of the Offering and the Formation Transactions, Holdings
and AEW will own approximately 17.0% and 16.0%, respectively, of the
outstanding shares of Common Stock of the Company. These stockholders will
have significant influence over the election of directors of the Company and
other matters to be voted on by the stockholders of the Company. Pursuant to
an agreement with the Company, AEW has the right to include two nominees on
the ballot for the election of directors of the Company, and one nominee on
the ballot for the election of directors of QRS, so long as AEW owns Common
Stock representing more than 15% of the voting securities of the Company, and
the right to include one nominee on the ballot for the election of directors
of the Company so long as AEW owns Common Stock representing more than 7% of
such securities. Holdings has agreed to vote its shares of Common Stock for
the AEW nominees included on the ballot for the election of directors of the
Company. No directors currently serve on the board of directors of the Company
or QRS pursuant to such arrangement, although AEW may, at its discretion,
exercise its right to include nominees on the ballot in the future. See
"Management--Election of Directors and Director Compensation." Additionally,
the concentration of ownership by Holdings and AEW may have the effect of
delaying, deferring or preventing a change in control of the Company and may
result in significant influence and control over the Board of Directors and
various corporate actions. See "Management" and "Share Ownership--Principal
Stockholders of Alexandria."

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ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT AND POWER TO ISSUE ADDITIONAL STOCK

In order for the Company to maintain its qualification as a REIT, not more
than 50% of the value of its outstanding capital stock may be owned, directly
or constructively, by five or fewer individuals or entities (as defined in the
Code). The Company's Charter prohibits, with exceptions for certain Continuing
Investors, direct or constructive ownership of shares of stock representing
more than 9.8% of the combined total value of outstanding shares of the
Company's stock by any person (the "Ownership Limit"). The constructive
ownership rules are complex and may cause shares of the Common Stock owned
directly or constructively by a group of related individuals or entities to be
constructively owned by one individual or entity. A transfer of shares to a
person who, as a result of the transfer, violates the Ownership Limit may be
void or may be transferred to a trust, for the benefit of one or more
qualified charitable organizations designated by the Company, with the
intended transferee having only a right to share (to the extent of the
transferee's original purchase price for such shares) in proceeds from the
trust's sale of such shares. See "Description of Capital Stock--Restrictions
on Transfer."

The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a
premium price for the Common Stock or otherwise be in the best interest of the
stockholders. See "Description of Capital Stock--Restrictions on Transfer."

The Company's Charter authorizes the Board of Directors to cause the Company
to issue additional authorized but unissued shares of Common Stock or
preferred stock, par value $.01 per share (the "Preferred Stock"), and to
classify or reclassify any unissued shares of Common Stock or Preferred Stock
and to set the preferences, rights and other terms of such classified or
reclassified shares. See "Description of Capital Stock--Common Stock" and "--
Preferred Stock." Preferred Stock will be available for possible future
financing of, or acquisitions by, the Company and for general corporate
purposes without any legal requirement that further stockholder authorization
for issuance be obtained. The issuance of Preferred Stock could make more
difficult any attempt to gain control of the Company by means of a merger,
tender offer, proxy contest or otherwise. Although the Board of Directors has
no present intention to do so, it could establish a series of Preferred Stock
that could, depending on the terms of such series, delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the Common Stock or otherwise be in the best interest of the
stockholders. Preferred Stock could also be issued with a preference on
dividend payments, which could affect the ability of the Company to pay
dividends or make other distributions to the holders of Common Stock. The
Charter and the Amended and Restated Bylaws of the Company (the "Bylaws") also
contain other provisions that may delay, defer or prevent a transaction or a
change in control of the Company that involves a premium price for the Common
Stock or may otherwise be in the best interest of the stockholders. See
"Certain Provisions of Maryland Law and of the Company's Charter and Bylaws,"
"--Control Share Acquisitions" and "--Advance Notice of Director Nominations
and New Business."

UNINSURED LOSS

The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to the Properties, with policy
specifications, insured limits and deductibles that the Company believes are
consistent with those customarily carried for similar properties. The Company
also has obtained environmental remediation insurance for the Properties. The
insurance, subject to certain exclusions and deductibles, covers the cost to
remediate environmental damage caused by unintentional future spills or the
historic presence of previously undiscovered hazardous substances. The Company
intends to carry similar insurance with respect to future acquisitions, as
appropriate. In addition, the Company requires its tenants to maintain
comprehensive insurance, including liability and casualty insurance, that is
customarily obtained for similar properties. There are, however, certain types
of losses that are not generally insured because they are either uninsurable
or not economically insurable. In addition, certain disaster-type insurance
(covering catastrophic events, such as earthquakes) may not be available or
may only be available at rates that, in the opinion of management of the
Company, are prohibitive. Many of the Properties are located in the vicinity
of potentially active earthquake faults. The Company has obtained earthquake
insurance for all of the Properties. Should an uninsured disaster or

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<PAGE>

a loss in excess of insured limits occur, including losses resulting from
earthquake or other seismic activity, the Company could lose its capital
invested in the affected properties, as well as the anticipated future
revenues from such properties, and would continue to be obligated on any
mortgage indebtedness or other obligations related to the properties. Any such
loss could adversely affect the Company and its ability to make distributions
to stockholders.

The Company will obtain updates of or endorsements to its existing title
insurance policies bringing such policies current through the closing of the
Offering. However, because such policies were originally obtained at the time
the applicable Property was acquired in an amount equal to the initial
purchase price of the Property, any such policy may be in an amount less than
the current value of the Property at the closing of the Offering. In the event
of an underinsured loss with respect to a Property relating to a title defect,
the Company could lose a portion of its capital invested in, and anticipated
profits from, such Property, which could adversely affect the Company and its
ability to make distributions to stockholders.

POSSIBLE ENVIRONMENTAL LIABILITIES

Under various federal, state and local environmental laws and regulations, a
current or previous owner or operator of real estate, as well as certain other
parties, may be required to investigate and remediate the effects of hazardous
or toxic substances or petroleum product releases on, under, in or from such
property, and may be held liable to a governmental entity or to third parties
for investigation and cleanup costs and certain damages resulting from such
releases. Such laws and regulations typically impose responsibility and
liability without regard to whether such person knew of or caused the
releases, and the liability under such laws and regulations has been
interpreted to be joint and several unless the harm is divisible and there is
a reasonable basis for allocation of responsibility. The cost of investigating
and remediating such contamination may be substantial, and the presence of
such contamination, or the failure to properly remediate it, may adversely
affect the owner's ability to sell or rent such property or to borrow using
such property as collateral. In addition, the owner of a site may be subject
to governmental fines and common law claims by third parties seeking to
recover damages and costs resulting from such contamination.

Certain other federal, state and local laws and regulations govern the
management and disposal of asbestos-containing materials ("ACMs"). Such laws
and regulations may impose liability for the release of ACMs and may provide
for third parties to seek recovery from owners or operators of such property
for personal injury associated with ACMs. In connection with the ownership and
operation of its properties, the Company may be potentially liable for such
costs. ACMs have been detected at certain of the Properties, but are not
expected to result in material environmental costs or liabilities to the
Company. Federal, state and local laws and regulations also require the
removal or upgrading of certain underground storage tanks and regulate the
discharge of storm water, wastewater and any water pollutants, the emission of
air pollutants, the generation, management and disposal of hazardous or toxic
chemicals, substances or wastes, and workplace health and safety.

The Company's leases generally provide that (i) the tenant is responsible
for all environmental liabilities relating to the tenant's operations, (ii)
the Company is indemnified for such liabilities and (iii) the tenant must
comply with all environmental laws and regulations. Such a contractual
arrangement, however, does not eliminate the Company's statutory liability or
preclude claims against the Company by governmental authorities or persons who
are not parties to such an arrangement. Noncompliance with environmental or
health and safety requirements may also result in the need to cease or alter
operations at a property, which could affect the financial health of a tenant
and its ability to make lease payments. In addition, if there is a violation
of such a requirement in connection with a tenant's operations, it is possible
that the Company, as the owner of the property, could be held accountable by
governmental authorities for such violation and could be required to correct
the violation and pay related fines.

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<PAGE>

appropriate, asbestos, radon and lead surveys, additional public records
review, subsurface sampling and other testing) of the Properties have not
revealed any environmental liability that the Company believes would have a
material adverse effect on the Company's business or results of operations.
Nevertheless, it is possible that the assessments on the Properties have not
revealed, or that the assessments on future acquisitions will not reveal, all
environmental liabilities and that there may be material environmental
liabilities of which the Company is unaware. No assurances can be given that
(i) the Company will not incur material liability under current or future laws
and regulations or (ii) the current environmental condition of the Properties
will not be adversely affected by tenant operations or by environmental
conditions in the vicinity of such Properties. See "The Properties--
Environmental Matters."

COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT

Under the Americans with Disabilities Act of 1990 (the "ADA"), places of
public accommodation and/or commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Although
management of the Company believes that the Properties are substantially in
compliance with the present requirements of the ADA, the Company may incur
additional costs in connection with such compliance in the future. In
addition, a number of additional federal, state and local laws and regulations
exist that may require modifications to the Company's properties, or affect
certain future renovations thereof, with respect to access by disabled
persons. Non-compliance with the ADA could result in the imposition of fines
or an award of damages to private litigants, and also could result in an order
to correct any non-complying feature. Under certain of the Company's leases,
the tenant is responsible for ensuring that the property complies with all
laws and regulations, including the ADA. Notwithstanding the foregoing, the
Company may be required to make substantial capital expenditures to comply
with this law. In addition, provisions of the ADA may impose limitations or
restrictions on the completion of certain renovations and thus may limit the
overall returns on the Company's investments.

CHANGES IN LAWS

Because increases in taxes (including income, service and transfer taxes)
are generally not passed through to tenants under leases, such increases may
adversely affect the Company and its ability to make distributions to
stockholders. The Properties are also subject to various federal, state and
local regulatory requirements and to state and local fire and life-safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company and its
distributions to stockholders.

RELIANCE ON KEY PERSONNEL

The Company will depend upon the services of its executive officers,
particularly Messrs. Marcus, Gold and Nelson. For example, the Company seeks
to utilize the extensive personal and business relationships that members of
management (primarily Messrs. Marcus and Gold) have developed over time with
owners of Life Science Facilities and with major Life Science Industry
participants to identify prospective acquisition opportunities and to
consummate favorable acquisitions prior to the active marketing of the subject
properties. Consequently, the loss of the services of any one of these
officers could have an adverse effect on the Company's business, financial
condition and prospects. The Company has entered into employment agreements
with each of Messrs. Marcus, Gold and Nelson. See "Management--Employment
Agreements."

CHANGE IN POLICIES WITHOUT STOCKHOLDER APPROVAL

The Company's policies with respect to all activities, including
qualification as a REIT, its investment, growth, debt, financing,
capitalization, distribution and operating policies, will be determined by the
Board of Directors upon the recommendations of management. See "Policies with
Respect to Certain Activities." These

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<PAGE>

policies may be amended or revised at any time and from time to time without a
vote of the stockholders of the Company. A change in these policies could
adversely affect the Company and its ability to make distributions to
stockholders. In addition, the Company expects to acquire additional real
estate assets in the future. The stockholders of the Company will not be
entitled to consider historical financial statements regarding, or to vote
upon, these acquisitions and, instead, will be required to rely entirely on
the decisions of management.

NO LIMITATION ON DEBT

Upon consummation of the Offering and the Formation Transactions, the
Company's debt to total market capitalization ratio will be approximately 21%.
Although the Company has adopted a policy to incur debt only if upon such
incurrence the debt to total market capitalization ratio would not exceed 50%,
the Charter does not contain any limitation on the amount of indebtedness the
Company may incur. Accordingly, the Board of Directors could alter or
eliminate this policy. If this policy were changed, the Company could become
more highly leveraged, resulting in an increase in debt service obligations
that could adversely affect the Company's cash flow and, consequently, the
amount available for distribution to stockholders, and could increase the risk
of default on the Company's indebtedness. See "The Company--Growth
Strategies."

The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets because it believes that the book value of its assets (which to a large
extent is the depreciated original cost of real property, the Company's
primary tangible assets) does not accurately reflect its ability to borrow and
to meet debt service requirements. The market capitalization of the Company,
however, is more variable than book value, and does not necessarily reflect
the fair market value of the underlying assets of the Company at all times.
The Company also will consider factors other than market capitalization in
making decisions regarding the incurrence of indebtedness, such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of its properties upon refinancing and the ability of particular
properties and the Company as a whole to generate cash flow to cover expected
debt service.

INABILITY TO SUSTAIN DISTRIBUTIONS

Distributions will be determined by the Board of Directors and will be
dependent on a number of factors, including the amount of the Company's cash
available for distribution, the Company's financial condition, any decision by
the Board of Directors to reinvest funds rather than to distribute such funds,
the Company's capital expenditures, the annual distribution requirements under
the REIT provisions of the Code and such other factors as the Board of
Directors deems relevant. See "Distributions."

The Company's initial distribution level is based on a number of
assumptions, including assumptions relating to the future operations of the
Company. These assumptions concern, among other matters, occupancy levels,
capital expenditures and other costs relating to the Properties, the level of
rental activity and decisions by the Company to reinvest rather than
distribute cash available for distribution. The Company expects to maintain
its distribution level for at least the 12-month period following consummation
of the Offering. However, certain of the assumptions described above are
beyond the control of the Company, and a significant change in any such
assumption could cause a reduction in cash available for distributions, which
could affect the Company's ability to sustain the initial distribution level.
See "Distributions." Moreover, the Company has not attempted to estimate the
sustainability of its distribution level past the first anniversary of the
Offering. As a result, no assurance can be given that the Company will be able
to maintain its initial distribution level. Any such failure to do so could
result in a decrease in the market price of the Common Stock.

ADJUSTMENT TO ELIMINATE EFFECTS OF ONE-TIME FINANCING COSTS ON CASH AVAILABLE
FOR DISTRIBUTION

The Company will pay approximately $7.2 million in financing costs
(associated with the acquisition of the Acquisition LLC) with a portion of the
net proceeds of the Offering and has made an adjustment to estimated cash
available for distribution to eliminate the effects of these one-time costs.
Without this adjustment, the estimated cash available for distribution as
calculated under the caption "Distributions" would be insufficient to fund the
Company's anticipated distributions to stockholders.

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<PAGE>

ABSENCE OF PRIOR MARKET FOR SHARES

Prior to the Offering, there has been no public market for shares of the
Common Stock. The shares of Common Stock have been approved for listing on the
NYSE, subject to official notice of issuance. There can be no assurance that,
upon listing, the Company will continue to meet the criteria for continued
listing of the Common Stock on the NYSE. See "Underwriting." The initial
public offering price may not be indicative of the market price for the Common
Stock after the Offering, and there can be no assurance that an active public
market for the Common Stock will develop or continue after the Offering. The
market value of the Common Stock could be substantially affected by general
market conditions, including changes in interest rates. Moreover, numerous
other factors, such as governmental regulatory action and changes in tax laws,
could have significant effects on the future market price of the Common Stock.
See "Underwriting" for a discussion of factors considered in establishing the
initial public offering price.

EFFECT OF MARKET INTEREST RATES ON PRICE OF SHARES

One of the factors that may influence the market price of the Common Stock
in public trading markets will be the annual yield on the Common Stock
compared to yields on other financial instruments. Thus, an increase in market
interest rates will result in higher yields on other financial instruments,
which may lead prospective purchasers of the Common Stock to demand a higher
annual distribution rate from the Company. The requirement for a higher
distribution rate may have an adverse effect on the market price of the Common
Stock.

EFFECT OF FUTURE OFFERINGS ON PRICE OF SHARES

The Company in the future may increase its capital resources by making
additional private or public offerings of its Common Stock, securities
convertible into its Common Stock, Preferred Stock or debt securities. See
"Description of Capital Stock--Power to Issue Additional Shares of Common
Stock and Preferred Stock." The actual or perceived effect of such offerings,
the timing of which cannot be predicted, may be the dilution of the book value
or earnings per share of the Common Stock outstanding, which may result in a
reduction of the market price of the Common Stock.

IMMEDIATE AND SUBSTANTIAL DILUTION

As set forth more fully under "Dilution," the pro forma net tangible book
value per share after the Offering will be substantially less than the initial
public offering price per Share in the Offering. Accordingly, stockholders
acquiring Shares in the Offering will experience immediate and substantial
dilution of $5.49 per Share in the net tangible book value of the Shares. See
"Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, of future sales of
shares of Common Stock, or the availability of shares of Common Stock for
future sale, on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of capital stock (including Common Stock
issued upon the exercise of stock options), or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. Upon consummation of the Offering and the Formation Transactions,
3,634,777 shares of Common Stock will be owned by the Continuing Investors.
The Company and the Continuing Investors have agreed with the Underwriters,
subject to certain limited exceptions, not to offer, sell, contract to sell,
pledge, grant any option to purchase or otherwise dispose of any shares of
Common Stock (or any securities convertible into, or exercisable, exchangeable
or redeemable for, shares of Common Stock) for a period of 360 days from the
date of this Prospectus, without the prior written consent of PaineWebber.
Management of the Company, including Messrs. Sudarsky, Marcus, Gold, Nelson,
Kreitzer, Stone and Ciruzzi, have agreed with the Underwriters, subject to
certain limited exceptions, not to offer, sell, contract to sell, pledge, or
otherwise dispose of any shares of Common Stock (or any securities convertible
into, or exercisable, exchangeable or redeemable for, shares of Common Stock),
including any shares of Common Stock that any such persons may have the right
to receive by virtue of their ownership interest in Holdings, for a period of
two years from the date of this

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<PAGE>

Prospectus, without the prior written consent of PaineWebber. After such time,
such shares of Common Stock may be sold in the public market, subject to
applicable securities law restrictions or exemptions from registration, if
available. The Company has agreed to prepare and file a shelf registration
statement or such other registration statement as may then be available within
a specified time period after the Offering, and the expiration of the
applicable lock-up period, with respect to the resale from time to time of
shares of Common Stock issued to AEW in connection with the Offering and the
Formation Transactions. Accordingly, AEW will have the ability to sell its
shares of Common Stock at such time pursuant to such registration statement or
any applicable exemption then available under the Securities Act of 1933, as
amended (the "Securities Act"), including Rule 144 promulgated thereunder. The
Company also will grant to Holdings customary transferable registration rights
with respect to the shares of Common Stock held by it. See "Shares Available
for Future Sale" and "Underwriting." In addition, the Company has reserved
900,000 shares of Common Stock for issuance to officers, directors and
employees of the Company pursuant to the Company's 1997 Stock Option Plan, of
which options for 600,000 shares will be issued in connection with the
Offering. These shares of Common Stock will be available for sale in the
public markets from time to time pursuant to exemptions from registration
requirements or upon registration. See "Management--Executive Compensation."

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THE COMPANY

Alexandria was formed in October 1994 to acquire, manage, expand and
selectively develop high quality, strategically located properties containing
office and laboratory space designed and improved for lease principally to
pharmaceutical, biotechnology, diagnostic and personal care products
companies, major scientific research institutions and related government
agencies. The Company's tenant base is broad and diverse within the Life
Science Industry and reflects the Company's focus on regional, national and
international tenants with substantial financial and operational resources.

Upon consummation of the Offering and the Formation Transactions, the
Company will own 15 Properties, including the Acquisition LLC Properties,
containing approximately 1.5 million rentable square feet of office and
laboratory space located in California (in the San Diego and San Francisco Bay
areas), Seattle, Washington and suburban Washington, D.C. (including Maryland
and Virginia), each of which is a leading market in the United States for the
Life Science Industry. To facilitate research and development, technology
transfer and recruitment of scientific professionals, Life Science Industry
companies generally cluster near major scientific research institutions,
universities and government agencies, all of which drive demand for properties
combining office and laboratory space suitable for such tenants. As a result,
the Company focuses its operations and acquisition activities principally in a
limited number of target markets, including all of the Company's existing
markets and certain other markets where Life Science Industry tenants are
concentrated, including Boston/Cambridge and the New York/New Jersey and
suburban Philadelphia areas. As of April 30, 1997, the Properties were
approximately 98% leased, at an average Annualized Net Effective Rent per
leased square foot of $18.20.

The multibillion dollar Life Science Industry comprises some of the fastest
growing segments of the U.S. economy and includes thousands of public and
private companies and scientific research institutions engaged principally in
the research, development, testing, manufacture, sale and regulation of
pharmaceuticals, diagnostics, personal care products, medical devices,
laboratory instrumentation and other related applications. Properties leased
to tenants in the Life Science Industry typically consist of suburban office
buildings containing scientific research and development laboratories and
other improvements that are generic to tenants operating in the Life Science
Industry. Unlike traditional office space, the location of and improvements to
Life Science Facilities are generally considered essential to a tenant's
business. The Company believes that, as a result of these factors, occupancy
levels in Life Science Facilities within its markets have been higher and
tenant turnover has been lower than in traditional office properties.

The Company is led by a senior management team with extensive experience in
both the real estate and Life Science industries and is supported by a highly
experienced board of directors. Management believes that it has achieved
favorable returns on its Properties as a result of: (i) the strong and growing
demand by tenants for Life Science Facilities; (ii) the constrained supply and
lack of speculative development of Life Science Facilities due to the
expertise generally required to develop and manage this property type; (iii)
the highly fragmented and inefficient market for ownership of Life Science
Facilities; (iv) the Company's adherence to strict evaluation criteria and due
diligence review when assessing prospective properties and tenants; and (v)
the Company's knowledge and understanding of Life Science Industry tenants and
their real estate needs. Additionally, the personal and business relationships
that management has developed over time within the real estate and Life
Science industries have contributed significantly to the Company's ability to
identify and consummate favorable acquisitions and to lease space to high
quality Life Science Industry tenants. Management believes that the Company
will be the first publicly traded entity focusing primarily on the
acquisition, management, expansion and selective development of Life Science
Facilities.

The Company's principal executive office is located at 251 South Lake
Avenue, Suite 700, Pasadena, California 91101, and its telephone number is
(818) 578-0777.

32
<PAGE>

GROWTH STRATEGIES

The Company seeks to maximize growth in FFO and cash available for
distribution to stockholders through effective management, operation,
acquisition, expansion and selective development of Life Science Facilities.
The White Paper defines FFO as net income (loss) (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Management
believes FFO is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and make
capital expenditures. The Company computes FFO in accordance with the
standards established by the White Paper, which may differ from the
methodology for calculating FFO utilized by other equity REITs, and,
accordingly, may not be comparable to such other REITs. Further, FFO does not
represent amounts available for management's discretionary use because of
needed capital replacement or expansion, debt service obligations, or other
commitments and uncertainties. FFO should not be considered as an alternative
to net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make distributions. The Company believes that
opportunities exist to increase FFO and cash available for distribution per
share by (i) acquiring high quality Life Science Facilities at attractive
returns in its target markets, (ii) realizing contractual rental rate
escalations (which are included in approximately 65% of the Company's leases
on a square footage basis), (iii) retenanting and releasing space within its
portfolio at higher rental rates, and with minimal tenant improvement costs,
(iv) expanding existing Properties or converting existing office space to
generic laboratory space that can be leased at higher rental rates,
(v) selectively developing properties on a retrofit or build-to-suit basis,
where the Company can secure leases prior to construction and where such
development is expected to result in returns on investment that the Company
believes will exceed returns on comparable acquisitions, and (vi) continuing
to implement effective cost control measures, including expense pass-through
provisions in tenant leases. In pursuing its growth strategy, the Company
intends to maintain significant financial flexibility, enabling it to take
advantage of growth opportunities as they arise.

The Company believes that its focus on Life Science Facilities presents an
attractive investment opportunity, given the strong and growing demand for
Life Science Facilities coupled with constraints on new supply. The Company
believes that these factors, combined with management's expertise and
knowledge of Life Science Industry tenants and their facility needs, present
opportunities for the Company to achieve returns on its property investments
that are often higher than returns available on other types of commercial real
estate. There can be no assurance, however, that the Company will be able to
achieve such higher returns.

Acquisitions. The Company seeks to identify and acquire high quality Life
Science Facilities in its target markets. Management believes that it has been
able to maximize returns on acquisitions as a result of its expertise in
understanding the real estate needs of Life Science Industry tenants, its
ability to identify and acquire those properties with generic laboratory
infrastructure that appeal to a wide range of Life Science Industry tenants
and its expertise in identifying and evaluating Life Science Industry tenants.
The Company also seeks to utilize the extensive personal and business
relationships that management has developed over time with owners of Life
Science Facilities and with major Life Science Industry participants to
identify prospective acquisition opportunities and to consummate favorable
acquisitions prior to the active marketing of the subject properties.

33
<PAGE>

relating to the properties, including the quality of the tenants, the
condition and capacity of building infrastructure, the quality and generic
characteristics of laboratory facilities and the physical condition of the
shell structure and common area improvements. Management also considers
opportunities available for leasing vacant space and retenanting occupied
space. In addition, the Company is developing a proprietary database that will
contain information on Life Science Facilities and Life Science Industry
tenants located in each of the Company's target markets. The database is
designed to enhance the Company's ability to identify and evaluate prospective
acquisitions in such markets.

The Company acquired the 1996 Acquired Properties for an aggregate purchase
price (including closing costs and budgeted capital improvements) of
approximately $95.2 million. The 1996 Acquired Properties are:

<TABLE>
<CAPTION>
PROPERTY (1) DATE OF ACQUISITION TOTAL ACQUISITION COSTS
------------ ------------------- -----------------------
<S> <C> <C>
1102/1124 Columbia Street May 1996 $31,755,000
Seattle, Washington
1413 Research Boulevard July 1996 11,966,000
Rockville, Maryland
300/401 Professional Drive September 1996 14,342,000
Gaithersburg, Maryland
25/35/45 West Watkins Mill Road October 1996 17,746,000
Gaithersburg, Maryland
1311/1401/1431 Harbor Bay Parkway December 1996 19,353,000
Alameda, California
-----------
Total $95,162,000
===========
</TABLE>
- --------
(1) Based on their respective configurations, the Company considers 1102/1124
Columbia Street to be one Property, 25/35/45 West Watkins Mill Road to be
one Property, 300 Professional Drive and 401 Professional Drive each to be
a Property and 1311 Harbor Bay Parkway, 1401 Harbor Bay Parkway and 1431
Harbor Bay Parkway each to be a Property.

In connection with the Offering, the Company will purchase the Acquisition
LLC, thereby acquiring the Acquisition LLC Properties, aggregating
approximately 424,000 square feet of office and laboratory space, for a
purchase price of approximately $58.9 million.

Internal Growth. The Company's strategy is to achieve internal growth from
several sources. Approximately 65% of the Company's leases (on a square
footage basis) contain effective annual rent escalations that are either fixed
(ranging from 2.5% to 4.0%) or indexed based on a CPI or other index. The
Company will seek to include similar escalation provisions in its future
leases. Although most of the Company's recent acquisitions have been fully
leased, the Company also seeks to acquire undervalued or underperforming
properties where it can improve investment returns through releasing of vacant
space and replacement of existing tenants with new tenants at higher rental
rates. Further, the Company believes that a significant percentage of its
existing leases contain below-market rental rates and that opportunities
should exist to achieve higher rental rates as these leases expire. The
Company believes that retenanting and releasing costs for existing improved
space at its Properties should be relatively low, as a result of the favorable
demand and supply characteristics for Life Science Facilities in the Company's
target markets and the generic infrastructure improvements that are already in
place at the Properties. Since 1994 (through April 30, 1997), the Company has
retenanted approximately 241,000 square feet of space at a weighted average
cost for non-revenue enhancing tenant improvements and leasing commissions of
$7.87 per square foot. The Company's ability to negotiate contractual rent
escalations in future leases and to achieve increases in rental rates will
depend upon market conditions and demand for Life Science Facilities at the
time such leases are negotiated and such increases are proposed.

34
<PAGE>

Rockville, Maryland, which is designed to accommodate an additional 60,000
square feet of office and laboratory space, and 14225 Newbrook Drive in
Chantilly, Virginia, which can accommodate three additional floors or up to
approximately 50,000 square feet of additional office and laboratory space.
The Company is also currently considering the conversion of office space into
higher rent generic laboratory space at 300 Professional Drive in
Gaithersburg, Maryland, 25, 35 and 45 West Watkins Mill Road in Gaithersburg,
Maryland, and 1311 Harbor Bay Parkway in Alameda, California. In the first
quarter of 1997 the Company completed the conversion of approximately 21,000
square feet into higher rent generic laboratory space at 1102 and 1124
Columbia Street in Seattle, Washington, and in 1998 the Company will convert
an additional approximately 28,000 square feet of space into higher rent
generic laboratory space at this Property. The Company has invested
approximately $1.4 million and will invest an additional $3.4 million in these
conversion projects (as well as in certain related improvements to the
Property), which funds have been set aside in a separate cash account pursuant
to the terms of the Company's lease with Corixa Corporation, which will occupy
all of the converted space. Based on this lease and the planned expenditures,
the Company estimates a return on investment of approximately 14% on these
projects. The Company intends to pursue expansion and conversion projects only
where the Company can secure signed leases for a significant portion of such
space prior to construction and where it expects to achieve investment returns
that equal or exceed its returns on acquisitions.

The Company believes that its internal growth strategy will be enhanced by
effective cost control measures, including expense pass-through provisions
that are included in a significant percentage of the Company's leases.
Approximately 80% of the Company's leases (on a square footage basis) are
triple net leases, requiring tenants to pay substantially all real estate
taxes and insurance, common area and other operating expenses (including
increases thereto). Further, approximately 80% of the Company's leases (on a
square footage basis) provide for the recapture of certain capital
expenditures (such as roof replacements, parking lot resurfacing and HVAC
maintenance expenditures), which the Company believes would typically be borne
by the landlord in traditional office leases.

Development. Given the current favorable acquisition environment for Life
Science Facilities, the Company intends to emphasize acquisitions over
development in pursuing its growth objectives. However, the Company intends to
pursue selective build-to-suit and retrofit development projects where it
expects to achieve investment returns that will equal or exceed its returns on
acquisitions. Build-to-suit projects involve the construction of new Life
Science Facilities for specified tenants. Retrofit projects involve the
conversion of existing office space for use by Life Science Industry tenants,
generally through the addition of laboratory space and other generic
infrastructure improvements. The Company intends to undertake build-to-suit
and retrofit projects only if it can secure long-term leases (generally 10
years or more) with high quality Life Science Industry tenants prior to
construction and the Company's investment in infrastructure will be generic in
nature and not tenant specific.

The Company's 10933 North Torrey Pines Road Property in San Diego,
California, is situated on approximately 16 acres of land. The Company has
rights to construct up to an additional 163,000 square feet of office and
laboratory space on this parcel. The Company also has entered into a purchase
agreement to acquire two parcels of land, aggregating approximately 4.2 acres,
adjacent to the Company's 3535 and 3565 General Atomics Court Properties, also
in the Torrey Pines area of San Diego, California. The purchase price for the
land is approximately $2.7 million, of which the Company has paid a deposit of
$200,000. The Company will have the ability (subject to receipt of necessary
governmental approvals and licenses) to develop and construct two buildings on
the land, containing an aggregate of approximately 90,000 square feet of
office and laboratory space. There can be no assurance, however, that the
Company will acquire the land or will be able to enter into desirable build-
to-suit arrangements.

Financing. Upon consummation of the Offering and the Formation Transactions,
the Company will have a debt to total market capitalization ratio of
approximately 21%. The Company has a commitment from the Bank of America to
provide, upon consummation of the Offering, the Credit Facility for up to $150
million, which will be used primarily for the acquisition of additional
properties. Upon consummation of the Offering and the Formation Transactions,
the Company will have approximately $1.0 million principal amount of
indebtedness outstanding under the Credit Facility. The Company has adopted a
policy of incurring debt in the future only if, upon such incurrence, its debt
to total market capitalization ratio will not exceed 50%.

35
<PAGE>

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" for a description of certain
conditions to borrowing and other provisions applicable to the Credit Facility
and "Policies With Respect to Certain Activities" for a discussion of the
Company's policy of incurring debt.

The Company expects to finance future acquisitions initially through the
Credit Facility and then to refinance such indebtedness with debt or equity
capital. The Company may also issue Common Stock or interests in subsidiaries
as consideration for acquisitions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company believes that its access to capital should provide it
with a competitive advantage in acquisitions over other bidders that qualify
their bids with financing or other contingencies.

TENANT DEMAND

Life Science Industry participants are engaged principally in the research,
development, testing, manufacture, sale and regulation of pharmaceuticals,
diagnostics, personal care products, medical devices, laboratory
instrumentation and other related applications. Tenant demand for Life Science
Facilities in the Company's target markets is driven largely by the size and
growth of the Life Science Industry and its various segments and particularly
by the Life Science Industry's expenditures on research and development.
Growth in the Life Science Industry creates demand for Life Science Facilities
because traditional office space is generally inadequate to meet the needs of
Life Science Industry tenants.

Research and development expenditures within the pharmaceutical industry,
the largest segment of the Life Science Industry, have grown dramatically
since 1985, and the Company believes that this growth should continue.
According to PhRMA, the principal industry trade group for major
pharmaceutical research companies, domestic research and development
expenditures by PhRMA member firms have increased at a compound annual rate of
over 13% since 1985. The following graph indicates the growth of domestic
research and development expenditures by PhRMA member firms from 1985 through
1995 and includes estimates of such research and development expenditures for
1996 and 1997.

DOMESTIC RESEARCH AND DEVELOPMENT EXPENDITURES
BY PHRMA MEMBER FIRMS

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG DOMESTIC RESEARCH AND DEVELOPMENT EXPENDITURES
(DOLLARS IN BILLIONS)

[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>

Measurement Period DOMESTIC RESEARCH AND
Measurement Pt- 1985-1995 DEVELOPMENT EXPENDITURES
- ------------------------- ------------------------
$ IN BILLIONS
<S> <C>
FYE 1985 $3.4
FYE 1986 $3.9
FYE 1987 $4.5
FYE 1988 $5.2
FYE 1989 $6.0
FYE 1990 $6.8
FYE 1991 $7.9
FYE 1992 $9.3
FYE 1993 $10.5
FYE 1994 $11.1
FYE 1995 $11.8
FYE 1996E $13.3
FYE 1997E $15.0
</TABLE>

- --------
SOURCE: PHRMA ANNUAL SURVEY, 1997.

36
<PAGE>

According to PhRMA, research and development expenditures also have
increased as a percentage of U.S. sales and exports of PhRMA member firms. In
1985, research and development expenditures totaled approximately 15.1% of
U.S. sales and exports. Based on estimated 1997 expenditures (and as
illustrated in the following chart), this percentage is expected to increase
to 21.2% of U.S. sales and exports. By comparison, according to PhRMA,
research and development expenditures across all U.S. industries averaged only
3.8% of sales in 1995. Although the PhRMA data is based on information
compiled principally from the nation's largest pharmaceutical companies, the
Company believes that this data is reflective of growth in research-based
pharmaceutical companies generally.

RESEARCH AND DEVELOPMENT AS A PERCENTAGE OF U.S. SALES
(INCLUDING U.S. EXPORTS)
BY PHRMA MEMBER FIRMS

RESEARCH AND EVELOPMENT AS A PERCENTAGE
OF U.S. SALES (INCLUDING U.S. EXPORTS)
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period RESEARCH AND DEVELOPMENT AS A PERCENTAGE
(Fiscal Year Covered) OF U.S. SALES (INCLUDING U.S. EXPORTS)
- --------------------- ----------------------------------------
<S> <C>
1985 15.1%
1986 15.1%
1987 16.1%
1988 16.7%
1989 16.8%
1990 16.2%
1991 16.6%
1992 17.9%
1993 19.9%
1994 20.4%
1995 19.4%
1996E 19.9%
1997E 21.2%
</TABLE>
--------
SOURCE: PHRMA ANNUAL SURVEY, 1997.

The Company believes that several factors should continue to drive increases
in research and development expenditures, and thus increase the demand for
Life Science Facilities. These factors include (i) the aging of the U.S.
population resulting from the transition of baby boomers to senior citizens,
which has increased demand for new drugs, (ii) increased competition resulting
from generic drug penetration and the loss of patent protection on billions of
dollars worth of drugs, both of which have increased the need for proprietary
drug manufacturers to develop new products, (iii) the desire of companies to
reduce research and development lead times to bring new products to market
faster, (iv) modifications to the FDA approval process, which have reduced the
effective cost of new drug development and (v) increased collaborative efforts
among major pharmaceutical and biotechnology companies, which have increased
capital availability to Life Science Industry participants.

37
<PAGE>

TARGET MARKETS

The Company owns Life Science Facilities in four primary markets and has
targeted these markets, and two additional markets, within which to focus its
activities. The Company has selected its target markets as a result of the
concentration of Life Science Industry participants. The concentration of Life
Science Industry participants is largely a result of the need of such
participants to be in close proximity to regulatory agencies and funding
sources, such as the FDA and the National Institutes of Health ("NIH"), trade
and manufacturing groups and major scientific research universities and non-
profit research centers. These groups provide funding, research and
administrative assistance and product approvals to the Life Science Industry,
as well as opportunities for the recruitment of scientific professionals. The
Company believes that its target markets have been and will continue to be
attractive markets for the Life Science Industry because of the established
presence of the scientific community and the opportunities for the
commercialization of Life Science Industry research and development in these
areas. The Company believes that the concentration of Life Science Industry
participants in its markets is a significant factor contributing to increased
demand for available space and higher overall occupancy rates for Life Science
Facilities and thus to reducing the risks associated with tenant turnover. See
"Risk Factors--Geographic Concentration; Dependence on Certain Markets."

EXISTING MARKETS

San Diego. Life Science Industry participants have established a significant
presence in the San Diego area primarily due to the presence of four
internationally renowned research institutions: The University of California
at San Diego; The Scripps Clinic and Research Foundation (a tenant of the
Company); the Burnham Institute (formerly, the La Jolla Cancer Research
Foundation); and The Salk Institute for Biological Studies. Additionally, the
Company believes that Life Science Industry participants are attracted to San
Diego due, in part, to a supportive local government and a favorable quality
of life that attracts scientific research professionals. The University of
California at San Diego, is one of the leading research universities in the
nation and the 14th largest recipient of NIH awards in 1996, with over $133
million of total awards. The University's faculty includes Nobel laureates and
members of the National Academy of the Sciences. The Scripps Clinic and
Research Foundation includes the largest non-profit biotechnology research
facility in the world, with over 700 scientists. Specializing in cancer
research, the Burnham Institute is the fourth largest research institution in
the San Diego area. The Salk Institute, with more than 500 employees, conducts
a wide range of Life Science Industry research.

San Francisco Bay Area. The San Francisco Bay area is the birthplace of the
biotechnology industry and continues to be one of the largest markets for
biotechnology companies and related research and development activities in the
United States. Local universities and non-profit and government scientific
research institutions, including the University of California at San
Francisco, the University of California at Berkeley, Stanford University and
the Lawrence Livermore Laboratories, have also provided advanced technologies
and scientific discoveries and have fostered the growth of the Life Science
Industry in the region. The University of California at San Francisco and
Stanford University ranked second and tenth, respectively, in NIH grants in
1996, with approximately $213 million and $151 million of total awards,
respectively. Several of the largest and most successful biotechnology
companies were founded in and remain based in the San Francisco Bay area,
including Genentech, Inc. and Chiron Corporation (a tenant of the Company). As
a result of the large concentration of major research universities, teaching
hospitals, scientific research institutions and Life Science Industry
companies, the Company believes that the San Francisco Bay area is also a
strong market for the recruitment of scientific research professionals.

Seattle. The University of Washington and the Fred Hutchinson Cancer
Research Center (a tenant of the Company), founded in 1861 and 1972,
respectively, have influenced the growth of the Life Science Industry in the
Seattle/Puget Sound region. For over 20 years, the University of Washington
has consistently ranked among the top five federally funded research
institutions. In fiscal 1996, the University received approximately
$482 million in such funds, representing an increase of nearly five-fold from
fiscal 1976. The University also serves as a major source of technology
transfer and commercialization of products. In addition, the Fred Hutchinson
Cancer Research Center, established by a Nobel prize winner in medicine, is a
comprehensive

38
<PAGE>

research center emphasizing basic cancer research and clinical testing. With
approximately 2,200 employees and revenues of $158 million in fiscal 1996, the
Fred Hutchinson Cancer Research Center continues to serve as a driver for Life
Science Facility demand in the area.

Suburban Washington, D.C. Washington, D.C. and its suburbs (including
Maryland and Virginia) have one of the highest concentrations of federal
laboratories, scientists and engineers per capita in the United States. The
NIH and the National Institute of Standards and Technology are significant
drivers of demand for Life Science Facilities in this market. The area's
colleges and universities, including major research universities and two
renowned medical schools, Johns Hopkins University and the University of
Maryland at Baltimore, also generate demand for Life Science Facilities.
Scientific research institutes involved in Life Science Industry research,
including the Institute for Genomic Research, are located nearby. Proximity to
the nation's capital also provides access to major trade associations
supporting the Life Science Industry, key federal agencies, such as the FDA (a
tenant of the Company in California), the U.S. Patent and Trademark Office and
the U.S. Department of Agriculture, as well as a cooperative network of
governmental, industrial and academic leaders and organizations.

ADDITIONAL TARGET MARKETS

Boston/Cambridge. With the Massachusetts Institute of Technology and Harvard
University as anchors, scientific research in the Boston/Cambridge area is one
of the principal drivers of demand for Life Science Facilities in the area.
The Company believes that these institutions, as well as other major research
universities, teaching hospitals and scientific research institutions, produce
a favorable environment for the recruitment of scientific professionals and
the development of new technologies and products, all of which contribute to
demand for Life Science Facilities. The Boston/Cambridge area has historically
produced several of the largest and most successful biotechnology companies,
including Genetics Institute, Inc., Biogen, Inc., and Genzyme Corp. The
Company believes that the factors supporting the growth of these companies,
including the cooperative network of academic and industrial organizations
within the Boston/Cambridge area, continue to attract Life Science Industry
participants to the area.

New York/New Jersey and Suburban Philadelphia Areas. The New York/New Jersey
and suburban Philadelphia areas are centers of the Life Science Industry on
the East Coast. New Jersey is home to the largest concentration of
pharmaceutical companies in the United States, including Merck & Co. Inc.,
Johnson & Johnson (an affiliate of which is a tenant of the Company in
California), Bristol-Myers Squibb Company and American Home Products Corp.
Smithkline Beecham p.l.c., Rhone-Poulenc Rorer, Inc. and Wyeth Laboratories
Inc., all based in the Philadelphia area, and Pfizer, Inc., based in New York,
further enhance this region's importance in the research and development of
pharmaceutical products. In addition to the presence of major pharmaceutical
companies, the University of Pennsylvania, Princeton University, the Sloan-
Kettering Cancer Research Center and numerous other major research
universities, teaching hospitals and scientific research institutions play a
significant role in the continuing development of the Life Science Industry in
this region.

MARKET STUDY

In connection with the Offering, the Company has obtained a market study
from Rosen Consulting Group, dated May 5, 1997 (the "RCG Study"), regarding
each of the Company's existing markets (San Diego, the San Francisco Bay Area,
Seattle and Suburban Washington, D.C.). The study, which has been filed as an
Exhibit to the Registration Statement, focused on scientific research
facilities, defined as properties containing both office and a significant
component of laboratory space, leased principally to pharmaceutical and
biotechnology companies, non-profit research institutions and related
government agencies engaged in scientific research. As a result, the RCG Study
did not include all Life Science Facilities, such as those facilities leased
primarily to diagnostic and medical instrumentation companies, personal care
products companies and other less intensive laboratory users.

39
<PAGE>

Generally, published statistics are not available on scientific research
facilities. The RCG Study noted that the owners of such properties varied by
market and included user institutions and companies, local developer/owners
and select other investors, and that the Company was the only identified
national investor. The RCG Study further noted that, given the lack of
published statistics, the estimated inventory of scientific research
facilities reflected in the RCG Study may not be inclusive of all such space
in each market, but that the research indicates that the reported occupancy
and rents were accurate for the entire inventory in each market. In
determining market rental rates in each market, the provider reviewed
comparable leases and surveyed active market brokers and other market
participants.

The RCG Study indicated that scientific research facilities were
substantially fully leased (98-100%) in each of the Company's existing
markets, with only a small structural vacancy accounting for downtime between
leases and during periods of renovation. In each market, occupancy for
scientific research facilities exceeded occupancy for suburban office space
and R&D space. The RCG Study further indicated that the limited availability
of scientific research space in the Company's markets was putting upward
pressure on rental rates. Set forth below is information in each market with
respect to (i) Annualized Net Effective Rent per leased square foot for the
Properties, and (ii) market annual triple net effective rental rates from the
RCG Study for prototype scientific research facilities and comparable office
and R&D space.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
ANNUALIZED NET COMPARABLE OFFICE AND
EFFECTIVE RENT PER SCIENTIFIC RESEARCH FACILITIES TRIPLE R&D TRIPLE
LEASED SQUARE FOOT NET EFFECTIVE RENTAL RATES NET EFFECTIVE RENTAL RATES
MARKET FOR THE PROPERTIES(1) PER SQUARE FOOT(2) PER SQUARE FOOT
- ------ --------------------- ------------------------------------- --------------------------
<S> <C> <C> <C>
San Diego
Torrey Pines Area..... $24.59 $23.50 - $33.50 $13.50 - $17.00
Other Areas........... -- $20.00 - $27.50 $ 9.00 - $13.50
San Francisco Bay Area
West Bay (3).......... -- $20.00 - $34.50 $16.00 - $34.00
East Bay (4).......... $12.37 $14.00 - $23.00 $ 8.00 - $12.00
Seattle................. $23.01 $21.00 - $28.50 $11.00 - $14.00
Suburban Washington,
D.C. .................. $15.20 $17.00 - $23.50 $11.00 - $13.00
</TABLE>
- --------
(1) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
April 30, 1997 for each market, less (for gross leases) real estate taxes
and insurance, common area and other operating expenses and (for all
leases) amortized tenant improvements and leasing commissions. This
amount, divided by the rentable square feet leased for each market as of
April 30, 1997, is the Annualized Net Base Rent per Leased Square Foot
shown.
(2) Rental rates reflect current market rates for a prototype scientific
research facility with 50-70% laboratory space and generic laboratory
infrastructure (of $75 to $100 per square foot) in place, located in a
"favorable" location in each market.
(3) West Bay includes the area from South San Francisco to Palo Alto.
(4) East Bay includes the area from Berkeley to Fremont, including Alameda.

There can be no assurance that occupancy rates in the Company's target
markets will continue to exceed those for suburban office space and R&D space,
or that the Company will be able to maintain rental rates in its target
markets at current levels or at the rental rates for prototype scientific
research facilities in such markets.

While the RCG Study noted that market rents were exceeding or approaching
the level required to support new construction of scientific research
facilities in the markets studied, the provider only found build to suit
projects planned in San Diego and San Francisco and did not identify any
speculative construction projects.

The RCG Study also indicated that tenant turnover in scientific research
facilities was low, due to the limited amount of available space and the
essential nature of the facilities to tenants. The RCG Study noted that
(i) tenants usually renew upon expiration of their leases (either through
signing of a new lease or, where applicable, exercise of an option to extend
an existing lease) unless they have outgrown their space; (ii) available space
is frequently released before it is put on the market and (iii) there is
minimal downtime between leases (4-6 months). The RCG Study estimated the
probability of renewal in each of the Company's markets at 80% or higher, with
the exception of San Diego where the renewal rate was estimated at 70% or
higher. Further, the RCG Study indicated that the probabilities for renewal
were higher--and thus tenant turnover was lower--for scientific research
facilities as compared to pure office properties in each of the markets
studied.

40
<PAGE>

DISTRIBUTIONS

Distributions by the Company will be determined by the Board of Directors
and will be dependent upon a number of factors, including the federal income
tax requirement that a REIT must distribute annually at least 95% of its
taxable income. The Company intends to make regular quarterly distributions to
the holders of the Common Stock and initially to distribute annually
approximately 88.6% of estimated cash available for distribution. The Company
expects to pay a pro rata distribution with respect to the period commencing
upon consummation of the Offering and ending on June 30, 1997.

Based on its estimated cash available for distribution, the Company
initially expects to make distributions of $1.60 per share on an annualized
basis, or an annual distribution rate of 8.0%, based on the initial public
offering price of $20.00 per share. The Company currently intends to maintain
its initial distribution rate for the 12-month period following consummation
of the Offering, unless actual results of operations, economic conditions or
other factors differ materially from the assumptions used in its estimate. The
Company does not intend to reduce the expected distribution rate if the
Underwriters' over-allotment option is exercised. See "Risk Factors--Inability
to Sustain Distributions." The following discussion and the information set
forth in the table and footnotes below should be read in connection with the
historical consolidated financial statements and the pro forma financial
information of the Company and notes thereto contained herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The Company's estimate of cash available for distribution after the Offering
is based upon pro forma FFO for the 12 months ended March 31, 1997, with
certain adjustments based on the items described below. The White Paper
defines FFO as net income (loss) (computed in accordance with GAAP), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Management believes FFO is
helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing activities
and investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt and make capital
expenditures. The Company computes FFO in accordance with the standards
established by the White Paper, which may differ from the methodology for
calculating FFO utilized by other equity REITs, and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent amounts
available for management's discretionary use because of needed capital
replacement or expansion, debt service obligations, or other commitments and
uncertainties. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flows from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make distributions. To estimate cash available for distribution
following the Offering, pro forma FFO for the 12 months ended March 31, 1997
was adjusted for certain known events and/or contractual commitments that
either occurred subsequent to March 31, 1997 or during the 12 months ended
March 31, 1997 but were not effective for the full 12 months, and for certain
non-GAAP adjustments consisting of (i) revising historical rent estimates from
a GAAP basis to amounts currently being paid or due from tenants and (ii) an
estimate of amounts anticipated for recurring tenant improvements, leasing
commissions and capital expenditures. Pro forma FFO was not adjusted for
changes in working capital resulting from changes in current assets and
current liabilities, for investing activities (other than a reserve for
capital expenditures and tenant improvements for renewing or reletting space)
or for financing activities (other than principal payments on mortgage debt).
The estimate of cash available for distribution is being made solely for the
purpose of setting the initial distribution and is not intended to be a
projection or forecast of the Company's results of operations or its
liquidity, nor is the methodology upon which such adjustments were made
necessarily intended to be a basis for determining future distributions. There
can be no assurance that any distributions will be made or that the estimated
level of distributions will be maintained by the Company.

The Company anticipates that its distributions will exceed earnings and
profits for federal income tax purposes due to non-cash expenses, primarily
depreciation and amortization, and the difference between rents

41
<PAGE>

reported for tax purposes as compared to rents reported in accordance with
GAAP. Therefore, approximately 23.1% (or $0.37 per share) of the distributions
anticipated to be paid by the Company for the 12 months following the Offering
are expected to represent a return of capital for federal income tax purposes
and in such event will not be subject to federal income tax under current law
to the extent such distributions do not exceed a stockholder's basis in the
Common Stock. The nontaxable distributions will reduce the stockholder's tax
basis in the Common Stock and, therefore, the gain (or loss) recognized on the
sale of such Common Stock or upon liquidation of the Company will be increased
(or decreased) accordingly. See "Federal Income Tax Considerations--Taxation
of Taxable Domestic Stockholders." The percentage of a stockholder's
distributions that represents a nontaxable return of capital may vary
substantially from year to year.

Federal income tax law requires that a REIT distribute annually at least 95%
of its REIT taxable income. See "Federal Income Tax Considerations--Taxation
of the Company." The amount of distributions on an annual basis necessary to
maintain the Company's REIT status based on pro forma taxable income of the
Company for the 12 months ended March 31, 1997, as adjusted for certain items
in the following table, would have been approximately $12.8 million or $1.23
per share. The estimated cash available for distribution is anticipated to be
in excess of the annual distribution requirements applicable to REITs. Under
certain circumstances, the Company may be required to make distributions in
excess of cash available for distribution in order to meet such distribution
requirements. For a discussion of the tax treatment of distributions to
holders of Common Stock, see "Federal Income Tax Considerations."

The Company believes that its estimate of cash available for distribution
constitutes a reasonable basis for setting the initial distribution; however,
no assurance can be given that the estimate will prove accurate or that actual
distributions will not vary significantly from the expected distributions.
Actual results of operations, economic conditions or other factors may differ
materially from the assumptions used in the estimate. The Company's actual
results of operations will be affected by a number of factors, including the
revenue received from the Properties, the operating expenses of the Company,
interest expense, the ability of tenants of the Properties to meet their
obligations and unanticipated capital expenditures. Variations in the net
proceeds from the Offering as a result of the exercise of the Underwriters'
over-allotment option may affect the cash available for distribution and the
payout ratio of cash available for distribution and available reserves.

42
<PAGE>

The following table describes the calculation of pro forma FFO for the 12
months ended March 31, 1997, and the adjustments thereto used in estimating
the initial cash available for distribution:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS,
EXCEPT
PER SHARE
AMOUNTS)
-----------
<S> <C>
Pro forma net income for the year ended December 31, 1996....... $ 8,083
Pro forma net income for the three months ended March 31, 1996.. (1,546)
Pro forma net income for the three months ended March 31, 1997.. 2,235
-------
Pro forma net income for the 12 months ended March 31, 1997..... $ 8,772
Plus: Pro forma real estate depreciation for the 12 months ended
March 31, 1997................................................. 3,885
Pro forma real estate amortization for the 12 months ended
March 31, 1997............................................... 113
Elimination of accrual of post-retirement benefit(1).......... 1,070
Elimination of stock option compensation expense and special
bonus(2)..................................................... 747
-------
Pro forma FFO for the 12 months ended March 31, 1997(3)....... 14,587
Adjustments:
Provision for assumed expiring leases, assuming no renew-
als(4)....................................................... (83)
Incremental pro forma lease adjustment(5)..................... 238
Net operating income from certain acquisitions(6)............. 5,834
Increase in interest expense.................................. (381)
Net increase in tenant recoveries(7).......................... 317
Decrease in other income(8)................................... (12)
-------
Estimated pro forma FFO for the 12 months ended April 30, 1998.. 20,500
Net effect of straight-lining of rents(9)..................... 510
One-time financing cost in connection with the acquisition of
the Acquisition LLC(10)...................................... (7,188)
-------
Pro forma estimated cash flows from operating activities........ 13,822
-------
Estimated cash flows used in investing activities:
Estimated recurring, non-revenue enhancing capital expendi-
tures(11).................................................... (1,132)
-------
Estimated cash flows used in financing activities:
Cash provided by Offering to pay one-time financing cost in
connection with the acquisition of the Acquisition LLC(10)... 7,188
Principal payments on mortgage debt........................... (1,121)
-------
Total estimated cash flows used in financing activities......... 6,067
-------
Total estimated cash available for distribution................. $18,757
=======
Total estimated cash distributions.............................. $16,627
=======
Estimated initial cash distribution per share(12)............... $ 1.60
=======
Estimated cash available for distribution payout ratio(13)...... 88.6%
=======
</TABLE>
- --------
(1) This amount relates solely to the elimination of a non-cash accrual of a
one-time post-retirement benefit for an officer of the Company.
(2) This amount eliminates stock option compensation expense of $394,000 and a
special bonus of $353,000, which are non-recurring compensation expenses
related to the Offering.
(3) The White Paper defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Management believes FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures. The Company computes
FFO in accordance with the standards established by the White Paper, which
may differ from the methodology for calculating FFO utilized by other
equity REITs, and, accordingly, may not be comparable to such other REITs.
Further, FFO does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. FFO should
not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.

43
<PAGE>

(4) The provision for assumed expiring leases above assumes no lease renewals
for the period from January 1, 1997 to April 30, 1998.
(5) Reflects increases and decreases resulting from the annualization of
leasing transactions occurring in 1996 and 1997. The net amount of
$238,000 includes the effect from eliminating the rental revenue relating
to leases expiring and not renewed during 1996 and adding rental revenue
for leases signed through April 30, 1997.
(6) Net operating income from certain acquisitions is derived from pro forma
revenues and expenses for the following Properties for the 12 months
ended April 30, 1998. No pro forma revenues and expenses have been
included in the pro forma results for the 12 months ended March 31, 1997
because each of these Properties was owner occupied prior to acquisition
by the Company or the Acquisition LLC.

<TABLE>
<CAPTION>
1102/1124 14225 1330 PICCARD
COLUMBIA STREET NEWBROOK DRIVE DRIVE TOTAL
--------------- ---------------- ---------------- ------
<S> <C> <C> <C> <C>
Acquisition Date........ May 31, 1996 January 13, 1997 January 15, 1997
Revenues:
Rental revenue......... $ 815 $3,418 $1,520 $5,753
Tenant recoveries...... 322 23 17 362
Other.................. 60 -- -- 60
------------ ---------------- ---------------- ------
1,197 3,441 1,537 6,175
------------ ---------------- ---------------- ------
Expenses:
Rental Properties...... 341 -- -- 341
------------ ---------------- ---------------- ------
Net operating income.... $ 856 $3,441 $1,537 $5,834
============ ================ ================ ======
</TABLE>
(7) Consists of (i) $301,000 of recovery payments from existing tenants in
accordance with their lease agreements and (ii) a $16,000 net increase in
tenant recoveries resulting from the net increase in occupancy for the 12
months ended April 30, 1997.
(8) Reflects the decrease in other income-storage relating to space vacated
by a tenant during 1996. This space was converted to additional office
space and released. See note (5).
(9) Represents the effect of adjusting straight-line rental revenue included
in pro forma net income for the 12 months ended April 30, 1998 from the
straight-line accrual basis to amounts currently being paid or due from
tenants. This adjustment is positive due to one significant lease (with
the FDA at 1431 Harbor Bay Parkway in Alameda, California) that was in
place at the time of the Company's purchase that contains rent step-down
provisions beginning on January 1, 1999. As a result, cash rents
currently received by the Company from this tenant ($2,950,000 annually)
exceed rents calculated on a straight-line basis in accordance with GAAP
($1,496,000 annually). The lower, straight-lined rental income of
$1,496,000 is reflected in FFO. If the Company did not include in
estimated cash available for distribution the cash to be received
pursuant to this lease in excess of the straight-lined amount, total
estimated cash available for distribution would be $17,303,000 and the
estimated cash available for distribution payout ratio would be 96.1%.
(10) The $7,188,000 financing cost reflects the difference between the
Company's purchase price for the Acquisition LLC ($58.9 million) and the
original purchase price of the Acquisition LLC Properties ($51.7
million). The adjustment reflects the elimination of this one-time cost,
which will be paid with a portion of the proceeds of the Offering and
will thus have no impact on estimated cash available for distribution.
(11) Reflects projected non-incremental revenue-generating tenant improvements
("TI"), leasing commissions ("LC") and non-reimbursable building
improvements for the 12 months ended April 30, 1998. Non-reimbursable
building improvements are calculated at a rate of $0.35 per square foot
for the Company's portfolio (or a total of $509,343) based on the
Company's historical experience. TI and LC expenditures are based on the
weighted average TI and LC expenditures for all space renewed and
retenanted by the Company during 1994, 1995 and 1996, multiplied by the
highest annual net rentable square feet of leased space expiring during
1997, 1998 and 1999.

<TABLE>
<CAPTION>
WEIGHTED
1994 1995 1996 1997 AVERAGE
----- ----- ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Retenanted
TI per net rentable square foot....... $0.32 $7.30 $5.90 $13.83 $ 6.24
LC per net rentable square foot....... $4.56 $4.23 $0.87 -- $ 1.63
----------
Total weighted average TI and LC.... $ 7.87
Highest annual net rentable square
feet of leased space
expiring during 1997, 1998 and
1999............................... 195,837
----------
$1,541,237
Estimated rate of retenant.......... 30%
----------
Total cost of retenants............. $ 462,371
Renewals
TI per net rentable square foot....... -- -- -- -- $ 0.00
LC per net rentable square foot....... -- $3.00 -- -- $ 1.17
----------
Total weighted average TI and LC.... $ 1.17
Highest annual net rentable square
feet of leases expiring during
1997, 1998 and 1999................ 195,837
----------
$ 229,129
Estimated rate of renewal........... 70%
----------
Total cost of renewals............ $ 160,391
----------
Total estimated TI and LC Cost........ $ 622,762
----------
Non-reimbursable building improve-
ments (1,455,267 square feet times
$0.35 per square foot)............... $ 509,343
----------
Total TI, LC and building improvement
costs................................ $1,132,105
==========
</TABLE>
(12) Based on a total of 10,392,131 shares to be outstanding upon consummation
of the Offering and the Formation Transactions.
(13) Calculated as the total estimated cash distributions divided by the total
estimated cash available for distribution. The payout ratio of estimated
pro forma FFO equals 81.1%.

44
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after deducting
underwriting discounts and commissions and estimated expenses of the Offering,
will equal approximately $121.6 million (approximately $140.2 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to apply the net proceeds of the Offering as follows: approximately $62.7
million to repay mortgage and other indebtedness (including the repayment of
approximately $2.5 million of indebtedness advanced to the Company from
Holdings) and approximately $58.9 million to acquire the Acquisition LLC, as
more fully described in "Formation and Structure." See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." In addition, the Company will incur
approximately $1.0 million of indebtedness under the Credit Facility to
establish a restricted cash account pursuant to the terms of certain
indebtedness.

If the Underwriters' over-allotment option to purchase additional Shares is
exercised, the Company expects to use the additional net proceeds for general
corporate purposes, including the acquisition of additional properties.
Pending the uses described above, the Company intends to invest the net
proceeds in interest-bearing accounts and other short-term, interest-bearing
securities that are consistent with the Company's qualification for taxation
as a REIT. Such investments may include, for example, government and
government agency securities, certificates of deposit and interest-bearing
bank deposits.

The following table sets forth certain information with respect to the
indebtedness to be repaid with the net proceeds of the Offering and the net
proceeds of approximately $15.4 million from new mortgage debt on two of the
Properties to be incurred upon consummation of, or shortly following, the
Offering. The indebtedness to be repaid at such time had a weighted average
interest rate of approximately 8.25% and a weighted average remaining term to
maturity of approximately 1.5 years (excluding the balance due to Holdings,
which is due on demand) as of May 1, 1997.

<TABLE>
<CAPTION>
INDEBTEDNESS
TO BE REPAID
PROPERTY ($000)(1)
-------- ------------
<S> <C>
3535/3565 General Atomics Court................................. $ 4,703
1413 Research Boulevard(2)...................................... 8,600
300/401 Professional Drive(2)................................... 10,800
25/35/45 West Watkins Mill Road(2).............................. 11,700
1311/1401/1431 Harbor Bay Parkway(2)............................ 13,300
10933/11099 North Torrey Pines Road............................. 18,158
1102/1124 Columbia Street....................................... 5,860
Working Capital Line of Credit.................................. 2,500
Advanced/Due to Holdings(3)..................................... 2,500
-------
Total......................................................... $78,121
=======
</TABLE>
- --------
(1) Amounts reflect principal amortization through May 1, 1997.
(2) Represents aggregate borrowings under the PaineWebber Facility of $44.4
million. Such indebtedness was incurred on various dates in 1996 and bears
interest at a rate equal to LIBOR plus 2.5% (8.19% at May 1, 1997). See
"Risk Factors--Benefits to Managing Underwriter."
(3) Holdings will use the proceeds to repay outstanding loans from certain of
its stockholders. See "Formation and Structure--Benefits to Related
Parties."

45
<PAGE>

CAPITALIZATION

The following table sets forth the historical capitalization of the Company
as of March 31, 1997, and the pro forma capitalization as adjusted to give
effect to the Formation Transactions, the Offering and the use of the net
proceeds from the Offering as described under "Use of Proceeds." The
information set forth in the table should be read in conjunction with the
historical consolidated financial statements and the pro forma financial
information of the Company and notes thereto contained herein, "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt(1):
Secured notes payable................................ $112,815 $ 55,381
Unsecured line of credit............................. 2,500 981
Due to Holdings........................................ 2,300 --
Advances from Holdings................................. 286 --
Mandatorily redeemable Series V Preferred Stock,
$.01 par value per share, $1,000 stated value per
share; 50,000 shares authorized; 27,500 issued and
outstanding; no shares issued and outstanding pro
forma............................................... 25,929 --
Stockholders' equity:
Preferred Stock, $.01 par value per share; 65,000
shares authorized; 100,000,000 shares authorized pro
forma
Series T Preferred Stock, $100 stated value per
share; 125 shares authorized; 12 shares issued and
outstanding; no shares issued and outstanding pro
forma............................................. 1 --
Series U Preferred Stock, $500 stated value per
share; 250 shares authorized; 220 issued and
outstanding; no shares issued and outstanding pro
forma............................................. 110 --
Common Stock, $0.01 par value per share; 65,000
shares authorized; 1,000 issued and outstanding;
100,000,000 shares authorized; 10,392,131 shares
issued and outstanding pro forma(2)................. -- 104
Additional paid-in capital............................. 15,702 167,004
Accumulated deficit.................................... (3,367) (16,368)
-------- --------
Total stockholders' equity............................. 12,446 150,740
-------- --------
Total capitalization................................... $156,276 $207,102
======== ========
</TABLE>
- --------
(1) See notes 3 and 4 of the notes to the historical consolidated financial
statements of the Company for information relating to the indebtedness.
(2) Excludes 900,000 shares reserved for issuance pursuant to the Company's
1997 Stock Option Plan of which options to acquire 600,000 shares of
Common Stock will be outstanding upon consummation of the Offering and the
Formation Transactions.

46
<PAGE>

DILUTION

At March 31, 1997, the Company had a net tangible book value of
approximately $36.3 million or $9.98 per share. After giving effect to (i) the
sale of the Shares and the receipt by the Company of approximately
$121.6 million in net proceeds from the Offering, after deducting underwriting
discounts and commissions and estimated Offering expenses, and (ii) the
repayment of approximately $72.8 million of debt, the pro forma net tangible
book value at March 31, 1997 would have been $150.7 million, or $14.51 per
share of Common Stock. This amount represents an immediate increase in net
tangible book value of $4.53 per share to the existing stockholders and an
immediate dilution in pro forma net tangible book value of $5.49 per share of
Common Stock to new investors. The following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share....................... $20.00
Net tangible book value per share prior to the Offering
(1)........................................................ $9.98
Increase in net tangible book value per share attributable
to the Offering (2)........................................ 4.53
-----
Pro forma net tangible book value after the Offering (3)...... 14.51
------
Dilution in net tangible book value per share of Common Stock
(4).......................................................... $ 5.49
======
</TABLE>
- --------
(1) Net tangible book value per share prior to the Offering is determined by
dividing net tangible book value of the Company (based on the March 31,
1997 net book value of the assets, less net book value of prepaid
financing costs to be expensed in connection with the mortgage
indebtedness repaid in connection with the Offering), by the number of
shares of Common Stock issuable to existing stockholders in connection
with the Formation Transactions.
(2) Based on the initial public offering price of $20.00 per share of Common
Stock and after deducting underwriting discounts and commissions and
estimated Offering expenses.
(3) Based on total pro forma net tangible book value of $150.7 million divided
by the total number of shares of Common Stock to be outstanding upon
consummation of the Offering and the Formation Transactions.
(4) Dilution is determined by subtracting pro forma net tangible book value
per share of Common Stock after the Offering from the initial public
offering price of $20.00 per share of Common Stock.

The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock
to be sold by the Company in the Offering and the number of shares of Common
Stock to be issued in connection with the Formation Transactions, and the net
tangible book value as of March 31, 1997.

<TABLE>
<CAPTION>
SHARES ISSUED BY THE COMPANY
-----------------------------------------
BOOK VALUE
OF AVERAGE
CONTRIBUTION CONTRIBUTION
SHARES VALUE PERCENT PER SHARE
------ ------------ ------- ------------
(IN THOUSANDS, EXCEPT PERCENTAGES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Shares sold to public investors..... 6,750 $135,000(1) 65.0% $20.00(1)
Shares issued in connection with the
Formation Transactions............. 3,642 36,329(2) 35.0 9.98
------ -------- -----
Total............................. 10,392 $171,329 100.0%
====== ======== =====
</TABLE>
- --------
(1) Before deducting underwriting discounts and commissions and estimated
expenses of the Offering.
(2) Based on the March 31, 1997 net book value of the assets, less net book
value of prepaid financing and leasing costs to be expensed in connection
with the mortgage indebtedness repaid in connection with the Offering.

47
<PAGE>

SELECTED FINANCIAL DATA

The following pro forma and historical information should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements and notes thereto of the Company included
elsewhere in this Prospectus. The selected historical financial information of
the Company at December 31, 1996 and 1995, and for the years ended December
31, 1996 and 1995, and for the period October 27, 1994 (inception) through
December 31, 1994, has been derived from the historical consolidated financial
statements of the Company audited by Ernst & Young LLP, independent auditors,
whose report with respect thereto is included elsewhere in this Prospectus.
The selected financial and operating information for the three months ended
March 31, 1997 and March 31, 1996 has been derived from the unaudited
financial statements of the Company included elsewhere in this Prospectus.

The unaudited pro forma information as of March 31, 1997 and for the year
ended December 31, 1996 and the three months ended March 31, 1997 is presented
as if the Offering, the application of the net proceeds thereof as set forth
in "Use of Proceeds," the Formation Transactions and the acquisition of the
membership interests in the Acquisition LLC all had occurred at March 31, 1997
for the pro forma balance sheet, and the Formation Transactions and the
acquisition of the 1996 Acquired Properties and the Acquisition LLC all had
occurred at January 1, 1996 for the pro forma income statements. No pro forma
revenues or expenses have been included in the pro forma income statements for
1102 and 1124 Columbia Street (acquired by the Company on May 31, 1996), 14225
Newbrook Drive (acquired by the Acquisition LLC on January 13, 1997) and 1330
Piccard Drive (acquired by the Acquisition LLC on January 15, 1997) for
periods prior to their purchase because each was owner occupied prior to
acquisition and as a result does not have historical operating results as a
rental property. The pro forma information is not necessarily indicative of
what the actual financial position or results of the Company would have been
as of and for the period indicated, nor does it purport to represent the
Company's future financial position or results of operations.
<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
--------------------------------- -------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1997 1997 1996 1996 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental................. $ 6,702 $ 5,175 $ 2,090 $ 18,878 $ 12,941 $ 8,020 $ 834
Tenant recoveries...... 1,915 1,897 486 5,913 4,169 1,699 87
Other.................. 128 89 34 458 563 204 90
---------- --------- ------- ---------- --------- ------- -------
Total revenue........... 8,745 7,161 2,610 25,249 17,673 9,923 1,011
Expenses:
Rental operations...... 1,933 1,830 554 6,471 4,356 2,228 252
General and
administrative........ 725 583 406 2,900 1,972 1,608 1,016
Special bonus(1)....... 353 353 -- -- -- -- --
Stock grant and stock
option
compensation(2)....... 394 394 -- -- -- -- --
Post retirement
benefit............... 632 632 -- 438 438 -- --
Interest............... 1,192 2,509 918 3,836 6,327 3,553 328
Acquisition LLC
financing costs(4).... -- -- -- -- -- -- --
Depreciation and
amortization.......... 1,281 1,003 413 3,521 2,405 1,668 63
---------- --------- ------- ---------- --------- ------- -------
Total expenses.......... 6,510 7,304 2,291 17,166 15,498 9,057 1,659
Income (loss) from
operations............. 2,235 (143) 319 8,083 2,175 866 (648)
Charge in lieu of
taxes.................. -- -- -- -- -- 105 --
---------- --------- ------- ---------- --------- ------- -------
Net income (loss)....... $ 2,235 $ (143) $ 319 $ 8,083 $ 2,175 $ 761 $ (648)
========== ========= ======= ========== ========= ======= =======
Net income allocated to
preferred
stockholders........... $ -- $ 1,577 $ -- $ -- $ 1,590 $ -- $ --
========== ========= ======= ========== ========= ======= =======
Net income (loss)
allocated to common
stockholders........... $ 2,235 $ (1,720) $ 319 $ 8,083 $ 585 $ 761 $ (648)
========== ========= ======= ========== ========= ======= =======
Net income (loss) per
share of pro forma
Common Stock........... $ 0.22 $ (0.04) $ 0.78 $ 0.60
========== ========= ========== =========
Pro forma shares of
Common Stock
outstanding(5)......... 10,392,131 3,642,131 10,392,131 3,642,131
========== ========= ========== =========
Supplemental net income
per share information:
Net income per share
reflecting the pro
forma effects of the
Offering and repayment
of debt(6)............ $ 0.17 $ 0.71
========= =========
Additional pro forma net
income per share
information:
Pro forma net income
per share reflecting
the pro forma effects
of the Offering and
the purchase of the
Acquisition LLC
Properties(7)......... $ 0.19 $ 0.39
========== ==========
BALANCE SHEET DATA (AT
PERIOD END):
Rental properties--net
of accumulated
depreciation........... $ 198,984 $ 147,315 $ 146,960 $54,353 $54,366
Total assets............ 212,653 161,690 160,392 58,702 56,600
Mortgage loans payable
and unsecured lines of
credit................. 56,362 115,315 113,182 40,894 39,164
Total liabilities....... 61,913 123,315 120,819 42,369 40,119
Mandatorily redeemable
Series V Preferred
Stock.................. -- 25,929 25,042 -- --
Stockholders' equity.... 150,740 12,446 14,531 16,333 16,481
</TABLE>

48
<PAGE>

SELECTED FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, OCTOBER 27, 1994
-------------------------------- -------------------------------- (INCEPTION) THROUGH
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL DECEMBER 31,
1997 1997 1996 1996 1996 1995 1994
--------- ---------- ---------- --------- ---------- ---------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net income(3)(4)........ $ 2,235 $ (143) $ 319 $ 8,083 $ 2,175 $ 761 $ (648)
Add:
Special bonus(1)....... 353 353 -- -- -- -- --
Stock grant and stock
option
compensation(2)....... 394 394 -- -- -- -- --
Accrual of a post-
retirement
benefit(8)............ 632 632 -- 438 438 -- --
Depreciation and
amortization of
Properties,
improvements and
leasing costs......... 1,281 1,003 413 3,521 2,405 1,668 63
--------- --------- ------- --------- --------- ------- --------
Funds from
Operations(9)......... $ 4,895 $ 2,239 $ 732 $ 12,042 $ 5,018 $ 2,429 $ (585)
========= ========= ======= ========= ========= ======= ========
Cash flows from
operating activities... $ -- $ 3,178 $ 972 $ -- $ (1,646) $ 355 $ (1,024)
Cash flows from
investing activities... -- (1,319) (86) -- (94,900) (1,554) (29,924)
Cash flows from
financing activities... -- (805) (52) -- 97,323 927 32,139
Number of properties
owned at period end.... 15 12 4 15 12 4 4
Rentable square feet of
properties owned at
period end............. 1,455,267 1,031,070 313,042 1,455,267 1,031,070 313,042 313,042
Occupancy of properties
owned at period end.... -- 97% 96% -- 97% 96% 88%
</TABLE>
- --------
(1) Represents a $353,000 special bonus awarded to an officer of the Company
in connection with the Offering.

(4) In connection with the Offering, the Company will acquire the membership
interests in the Acquisition LLC for $58,857,000, which exceeds the
purchase price paid by the Acquisition LLC for the Acquisition LLC
Properties by $7,188,000. This difference will be accounted for as a
financing cost and recognized when the transaction is completed.

49
<PAGE>

(6) Supplemental net income per share information is included below:

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
The following table sets
forth the effects of the
Offering and the
repayment of the
Company's debt with the
proceeds of the Offering:
Historical net income of
the Company............ $ (143) $ 2,175
Pro forma decrease in
interest expense
associated with the
repayment of debt...... 1,351 2,830
---------------------- ----------------------
Net income of the
Company adjusted for
repayment of debt...... $ 1,208 $ 5,005
====================== ======================
Common Stock outstanding
on an historical
basis.................. 3,642,131 3,642,131
Common Stock issued in
the Offering for
repayment of debt...... 3,416,022 3,416,022
---------------------- ----------------------
Common Stock
outstanding--pro
forma.................. 7,058,153 7,058,153
====================== ======================
Net income per share
reflecting the pro
forma effects of the
Offering and repayment
of debt................ $ 0.17 $ 0.71
====================== ======================

(7) Additional pro forma
net income per share
information is included
below:

The following table sets
forth the pro forma
effect of the purchase of
the Acquisition LLC
Properties with proceeds
from the Offering:
Historical net income of
the Company............ $ (143) $ 2,175
Pro forma net income of
the Acquisition LLC.... 1,447 539
---------------------- ----------------------
Pro forma net income of
the Company and the
Acquisition LLC........ $ 1,304 $ 2,714
====================== ======================
Common Stock outstanding
on an historical
basis.................. 3,642,131 3,642,131
Common Stock issued in
the Offering to
purchase the
Acquisition LLC
Properties(a).......... 3,267,144 3,267,144
---------------------- ----------------------
Common Stock
outstanding--pro
forma.................. 6,909,275 6,909,275
====================== ======================
Pro forma net income per
share reflecting the
pro forma effects of
the Offering and
purchase of the
Acquisition LLC
Properties............. $ 0.19 $ 0.39
====================== ======================
</TABLE>

(8) This adjustment relates solely to the elimination of a non-cash accrual of
a one-time post-retirement benefit for an officer of the Company.

(9) The White Paper defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Management believes FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities it
provides investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures. The Company computes
FFO in accordance with standards established by the White Paper, which may
differ from the methodology for calculating FFO utilized by other equity
REITs, and, accordingly, may not be comparable to such other REITs.
Further, FFO does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. See notes (9)
and (11) to the table under the caption "Distributions" and the notes to
the Company's historical financial statements. FFO should not be
considered as an alternative to net income (determined in accordance with
GAAP) as an indication of the Company's financial performance or to cash
flows from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
distributions.

50
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with the information
contained in "Selected Financial Data" and the more detailed historical
consolidated financial statements and notes thereto included elsewhere herein.

Since its formation in October 1994, the Company has devoted substantially
all of its resources to the acquisition and management of high quality,
strategically located Life Science Facilities leased principally to Life
Science Industry tenants in its target markets. Upon consummation of the
Offering and the Formation Transactions, the Company will have total assets
with a book value of approximately $216 million, including real estate assets
with a book value of approximately $199 million.

The Company receives income from rental revenue (including tenant
recoveries) from its Properties. The Company acquired its current portfolio
over the last three years, with four of the Properties acquired in calendar
year 1994 (the "1994 Acquired Properties"), eight in 1996 and three to be
acquired in connection with the Offering and the Formation Transactions. As a
result of the Company's acquisition strategy, the financial data shows
significant increases in total revenue from year to year, largely attributable
to the acquisitions over the years and the benefit of a full period of
effective rental and other revenue for Properties acquired in the preceding
year. For the foregoing reasons, the Company does not believe its period-to-
period financial data are comparable.

RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 1997 ("First Quarter 1997") to
Three Months Ended March 31, 1996 ("First Quarter 1996")

Rental revenue increased by $3.1 million, or 148%, to $5.2 million for First
Quarter 1997 compared to $2.1 million for First Quarter 1996. The increase
resulted primarily from the 1996 Acquired Properties, which added $3.0 million
of rental revenue in First Quarter 1997. Rental revenue from the Properties
owned since January 1, 1995 ("Same Properties") increased by $64,000, or 3%.
This increase resulted primarily from the conversion and lease of 19,310
square feet of storage space at 10933 North Torrey Pines Road to higher rent
laboratory space in October 1996.

Tenant recoveries increased by $1.4 million, or 290%, to $1.9 million for
First Quarter 1997 compared to $486,000 for First Quarter 1996. The increase
resulted primarily from the 1996 Acquired Properties, which added $1.3 million
of tenant recoveries. Tenant recoveries from the Same Properties increased by
$101,000, or 21%, due to an increase in operating expenses and the improved
measurement and recovery of tenant utility expenses.

Other income increased by $55,000, or 161%, to $89,000 for First Quarter
1997 compared to $34,000 for First Quarter 1996, resulting from an increase in
interest income due to increased amounts in capital improvement reserve
accounts.

Rental operating expenses increased by $1.3 million, or 230%, to $1.8
million for First Quarter 1997 compared to $554,000 for First Quarter 1996.
The increase resulted primarily from the 1996 Acquired Properties, which added
$1.2 million of rental expenses. Operating expenses for the Same Properties
were relatively unchanged.

General and administrative expenses increased by $177,000, or 44%, to
$583,000 for First Quarter 1997 compared to $406,000 for First Quarter 1996.

The special bonus of $353,000 resulted from the accrual of a bonus awarded
to an officer of the Company in connection with the Offering. The stock grant
and stock option compensation of $394,000 resulted from the accrual of non-
recurring, non-cash compensation expense relating to the issuance of Holdings
Stock Options.

Post-retirement benefit expense for First Quarter 1997 reflects an
adjustment for a non-cash accrual associated with a one-time post-retirement
benefit for an officer of the Company. Subsequent to year end, the

51
<PAGE>

officer announced his intention to retire upon completion of the Offering. In
connection therewith, the officer's post retirement benefit agreement was
amended and the post retirement benefit accrued was adjusted to reflect the
early retirement.

Interest expense increased by $1.6 million, or 173%, to $2.5 million for
First Quarter 1997 compared to $918,000 for First Quarter 1996. The increase
resulted primarily from indebtedness incurred to acquire the 1996 Acquired
Properties, which added $1.5 million of interest expense.

Depreciation and amortization increased by $590,000, or 143%, to $1.0
million for First Quarter 1997 compared to $413,000 for First Quarter 1996.
The increase resulted primarily from depreciation associated with the 1996
Acquired Properties.

As a result of the foregoing, net income decreased by $462,000, or 145%, to
a net loss of $143,000 for First Quarter 1997 compared to $319,000 for First
Quarter 1996.

Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995

Rental revenue increased by $4.9 million, or 61%, to $12.9 million for the
year ended December 31, 1996 compared to $8.0 million for the year ended
December 31, 1995. The increase resulted primarily from the 1996 Acquired
Properties, which added $4.6 million of rental revenue in 1996. Rental revenue
from the Same Properties increased by $370,000, or 5%. Of this increase,
$320,000 resulted from a full year of rental income in 1996 resulting from the
increase in occupancy at 11099 North Torrey Pines Road during 1995.

Tenant recoveries increased by $2.5 million, or 147%, to $4.2 million for
1996 compared to $1.7 million for 1995. The increase resulted primarily from
the 1996 Acquired Properties, which added $2.1 million of tenant recoveries.
Tenant recoveries from the Same Properties increased by $395,000, or 23%. Of
this increase, $300,000 resulted from a new lease at 11099 North Torrey Pines
Road. The remaining increase resulted primarily from a new energy management
system at 10933 North Torrey Pines Road that allows the Company to more
accurately measure and recover from its tenants certain costs of utility
usage.

Other income increased by $359,000, or 176%, to $563,000 for 1996 compared
to $204,000 for 1995. The increase resulted primarily from the 1996 Acquired
Properties, which added $337,000 of other income.

Rental operating expenses increased by $2.2 million, or 100%, to $4.4
million for 1996 compared to $2.2 million for 1995. The increase resulted
primarily from the 1996 Acquired Properties, which added $2.0 million of
rental operating expenses. Rental operating expenses from the Same Properties
increased by $162,000, or 7.3%, primarily as a result of an increase in
expenses at 10933 North Torrey Pines Road.

General and administrative expenses increased by $364,000, or 23%, to $2.0
million for 1996 compared to $1.6 million for 1995. The increase resulted
primarily from additional professional fees incurred during 1996.

Post-retirement benefit expense in 1996 represents the non-cash accrual
associated with a one-time post-retirement benefit for an officer of the
Company.

Interest expense increased by $2.8 million, or 80%, to $6.3 million for 1996
compared to $3.5 million for 1995. The increase resulted primarily from
indebtedness incurred to acquire the 1996 Acquired Properties, which added
$2.3 million of interest expense, and debt outstanding under the Company's
unsecured line of credit, which was repaid in July 1996.

Depreciation and amortization increased by $737,000, or 44%, to $2.4 million
for 1996 compared to $1.7 million for 1995. The increase resulted primarily
from depreciation associated with the 1996 Acquired Properties.

As a result of the foregoing, net income increased by $1.4 million, or 184%,
to $2.2 million for 1996 compared to $761,000 for 1995.

52
<PAGE>

Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994

Rental revenue increased by $7.2 million, or 862%, to $8.0 million for the
year ended December 31, 1995 compared to $834,000 for the year ended December
31, 1994. The increase resulted primarily from a full year of rental revenue
from the 1994 Acquired Properties.

Tenant recoveries increased by $1.6 million, or 1,853%, to $1.7 million for
1995 compared to $87,000 for 1994. The increase resulted primarily from a full
year of tenant recoveries from the 1994 Acquired Properties.

Other income increased by $114,000, or 127%, to $204,000 for 1995 compared
to $90,000 for 1994. The increase resulted primarily from $56,500 of
additional storage income from the 1994 Acquired Properties and interest
income of $57,000 earned on the Company's cash balances for 1995 not earned
during 1994.

Rental operating expenses increased by $2.0 million, or 784%, to $2.2
million for 1995 compared to $252,000 for 1994. The increase resulted
primarily from a full year of rental operating expenses for the 1994 Acquired
Properties.

General and administrative expenses increased by $592,000, or 58%, to $1.6
million for 1995 compared to $1,016,000 for 1994. The increase resulted
primarily from a full year of general and administrative expenses in 1995
compared to 1994.

Interest expenses increased by $3.2 million, or 983%, to $3.6 million for
1995 compared to $328,000 for 1994. The increase resulted primarily from a
full year of interest expense on outstanding debt in 1995 compared to 1994.

Depreciation and amortization increased by $1.6 million, or 2,548%, to $1.7
million for 1995 compared to $63,000 for 1994. The increase resulted primarily
from a full year of depreciation and amortization from the 1994 Acquired
Properties.

As a result of the foregoing, net income increased by $1.4 million to
$761,000 for 1995 compared to a net loss of $648,000 for 1994.

PRO FORMA RESULTS OF OPERATIONS

Comparison of Pro Forma Three Months Ended March 31, 1997 to Historical Three
Months Ended March 31, 1997

For the three months ended March 31, 1997, pro forma rental revenue, tenant
recoveries, rental property operating expenses and depreciation and
amortization reflect increases over the historical amounts due to adjustments
for the previously owner-occupied periods for the Acquisition LLC Properties.
Pro forma interest expense of $1.2 million is $1.3 million lower than the
historical interest expense of $2.5 million due to the elimination of interest
on certain mortgage loans to be repaid with a portion of the proceeds of the
Offering, offset by interest expense on two new mortgage loans to be incurred
upon consummation of, or shortly following, the Offering. Pro forma general
and administrative expenses have been increased due to additional costs
expected to be incurred as a result of being a public company.

Comparison of Pro Forma Year Ended December 31, 1996 to Historical Year Ended
December 31, 1996

For the year ended December 31, 1996, pro forma rental revenue, tenant
recoveries, rental operating expenses and depreciation and amortization were
higher than the historical amounts as a result of the Company's ownership in
the pro forma period of the 1996 Acquired Properties and the Acquisition LLC
Properties, the pre-acquisition results of which are not included in the
historical financial data. Additionally, pro forma interest expense was lower
by $2.5 million, or 39%, primarily as a result of the elimination of interest
on certain mortgage loans to be repaid with a portion of the proceeds of the
Offering. The increase in general and administrative expenses of $928,000, or
47%, for the pro forma period, reflects increased costs expected to be
incurred as a result of being a public company.

53
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company will repay approximately $78.1 million of its existing mortgage
debt with the net proceeds of the Offering, as well as the net proceeds from:
(i) a new $8.5 million, 17-year, self-amortizing mortgage on 1431 Harbor Bay
Parkway, and (ii) a new $6.9 million mortgage on 1102 and 1124 Columbia
Street, each of which is expected to be incurred upon consummation of, or
shortly following, the Offering. As a result, total secured debt will be
reduced by approximately $57.6 million to $55.2 million, and 11 of the 15
Properties will be unencumbered. The Company is required to pay approximately
$800,000 in fees in connection with the Credit Facility and certain other
loans.

The Company is required to establish a $1.0 million restricted cash account
pursuant to the terms of certain indebtedness, which will initially be funded
by drawing on the Credit Facility. In addition, the Company has established
capital expenditure cash reserves of approximately $4.1 million. Of the
$4.1 million, approximately $3.4 million has been set aside and is held in a
cash account to complete the conversion of existing space into higher rent
generic laboratory space (as well as certain related improvements to the
Property) at 1102 and 1124 Columbia Street pursuant to an agreement between
the Company and Corixa Corporation. See "The Company--Growth Strategies." The
remaining $700,000 has been set aside for capital expenditures based on
agreements with lenders. The Company also holds approximately $500,000 in
security deposit reserve accounts based on the terms of certain lease
agreements.

Upon consummation of the Offering and the Formation Transactions, the
Company will have outstanding mortgage indebtedness as follows:

<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY PLEDGED AS COLLATERAL PRINCIPAL BALANCE INTEREST RATE MATURITY DATE
------------------------------ ----------------- ------------- -------------
<S> <C> <C> <C>
3535/3565 General Atomics
Court
San Diego, CA $18,305,869 9.00% December 2014
1431 Harbor Bay Parkway
Alameda, CA 8,500,000 (1) January 2014
1102/1124 Columbia Street
Seattle, WA 21,562,264 7.75% May 2016
1102/1124 Columbia Street
Seattle, WA 6,860,000 (2) July 2016
-----------
Total $55,228,133
===========
</TABLE>
- --------
(1) The interest rate will be fixed at a rate equal to approximately 70 basis
points over the interpolated 7-year Treasury rate, which would result in
an interest rate of approximately 7.30% (as of May 1, 1997).

(2) The interest rate will initially be variable, based on an interest rate of
90 basis points over LIBOR. This rate is anticipated to be fixed (based on
the terms of the loan) in August 1997 at a rate equal to approximately 90
basis points over the interpolated 20-year Treasury rate, which would
result in a fixed interest rate of approximately 7.70% (as of May 1,
1997).

The expected principal payments due on outstanding indebtedness in 1997
(following the Offering) and 1998 are $705,000 and $1,190,000, respectively.

The Company believes that the substantial reduction in its overall debt, and
the corresponding reduction in required debt service payments, should provide
the Company with increased financial flexibility to take advantage of
acquisition opportunities as well as to provide working capital for
retenanting and releasing costs and for payment of leasing commissions
associated with new leasing activity.

Although cash from operations required to fund interest expense will
decrease substantially as a result of the Company's reduction in overall debt,
such reduction will be offset by an increased use of cash from operations to
meet annual REIT distribution requirements. The Company expects to make
distributions and to pay amortization of principal and interest on its debt
from cash available for distribution, which is expected to exceed cash
historically available for distribution as a result of the reduction in
overall debt described above.

54
<PAGE>

Amounts accumulated for distribution will be invested by the Company primarily
in interest-bearing accounts and other short-term, interest-bearing securities
that are consistent with the Company's qualification for taxation as a REIT.

The Company expects to meet its short-term liquidity requirements generally
through net cash provided by operations. The Company believes that its net
cash provided by operations will be sufficient to allow the Company to make
distributions necessary to enable the Company to continue to qualify as a
REIT. The Company also believes that net cash provided by operations will be
sufficient to fund its recurring non-revenue enhancing capital expenditures,
tenant improvements and leasing commissions.

The Company expects to meet certain long-term liquidity requirements, such
as property acquisitions, scheduled debt maturities, renovations, expansions
and other non-recurring capital improvements, through long-term secured and
unsecured indebtedness and the issuance of additional equity securities. The
Company anticipates that only a portion of the principal outstanding under its
outstanding indebtedness will be amortized prior to maturity and that the
Company will not have sufficient funds on hand to repay such indebtedness at
maturity. As a result, it will be necessary for the Company to refinance such
debt either through additional debt financing secured by individual properties
or groups of properties, by unsecured private or public debt offerings or by
additional equity offerings. See "Risk Factors--Real Estate Financing." The
Company's debt will mature at various dates through 2016.

The Company has received a commitment for the Credit Facility from the Bank
of America for up to $150,000,000, consisting of a $100,000,000 activated
tranche and a $50,000,000 tranche which may be activated at the Company's
discretion provided there is no event of default under the Credit Facility.
The Company expects to enter into the Credit Facility upon consummation of the
Offering and the Formation Transactions. The Credit Facility will provide for
syndicated borrowings bearing interest based on the lower of (i) the LIBOR
rate plus an applicable margin ranging from 1.10% to 1.50% and (ii) a bank
reference rate plus an applicable margin ranging from 0.0% to 0.25%. The
applicable margins will be determined initially by reference to the ratio of
the Company's total liabilities to gross asset value at the time of borrowing.
Upon completion of the Offering, the Company anticipates borrowing under the
Credit Facility at a rate equal to LIBOR plus 1.40%. The Company may also
solicit competitive bids for loans for up to one-third of the activated
commitment amount. The Company has paid certain fees in connection with the
acceptance of the commitment to lend and will be liable for additional fees
upon the closing of the Credit Facility and thereafter. The Credit Facility
will have customary conditions to closing and to borrowing, and will contain
representations and warranties customary in REIT financings. The Credit
Facility will contain financial covenants, including minimum market net worth;
total liabilities to gross asset value ratios; earnings to interest and fixed
charge coverage ratios; limitations on unsecured indebtedness and advances to
joint ventures; and requirements to maintain a pool of unencumbered assets
approved by the lenders under certain circumstances and meeting certain
defined characteristics. The Credit Facility will contain restrictions on,
among other things, indebtedness, investments, distributions and mergers.
There can be no assurance that the Company will be able to enter into the
Credit Facility on terms satisfactory to it. The Credit Facility will be used
to finance acquisitions and capital improvements, and for general corporate
purposes. Upon consummation of the Offering and the Formation Transactions,
the Company will have approximately $1.0 million principal amount of
indebtedness outstanding under the Credit Facility.

The Phase I environmental assessments of the Properties have not revealed
any environmental liabilities that the Company believes would have a material
adverse effect on the Company's financial condition or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liabilities. See "Risk Factors--Possible Environmental Liabilities" and "The
Properties--Environmental Matters."

HISTORICAL CASH FLOWS

The Company's principal sources of funding for operations and capital
expenditures have been cash flows from operating activities, private stock
offerings and secured debt financings. The Company had net income for the
years ended December 31, 1996 and 1995, and had a net loss for the year ended
December 31, 1994. The Company had net income for the three months ended March
31, 1997 and 1996.

55
<PAGE>

Net cash provided by operating activities decreased by $2.0 million to a
deficit of $1.6 million for 1996 compared to net cash of $355,000 for 1995.
The decrease resulted primarily from loan fees associated with additional
financing and additional restricted cash reserves required by a tenant of one
of the 1996 Acquired Properties. Net cash provided by operating activities
increased by $1.4 million to $355,000 for 1995 compared to a deficit of $1.0
million for 1994. The increase resulted from a full year of operations for the
1994 Acquired Properties. Net cash provided by operating activities increased
by $2.2 million to $3.2 million for the three months ended March 31, 1997
compared to net cash of $972,000 for the three months ended March 31, 1996.
The increase resulted from the operations of the 1996 Acquired Properties.

Net cash used in investing activities increased by $93.3 million to $94.9
million for 1996 compared to net cash used in investing activities of $1.6
million for 1995. The increase resulted primarily from the 1996 Acquired
Properties. Net cash used in investing activities decreased by $28.3 million
to $1.6 million for 1995 compared to $29.9 million for 1994. The decrease
resulted from the fact that no properties were acquired in 1995. Net cash used
in investing activities increased by $1.2 million to $1.3 million for the
three months ended March 31, 1997 compared to the net cash used of $86,000 for
the three months ended March 31, 1996. The majority of the increase resulted
from improvements made to 1102 and 1124 Columbia Street.

Cash provided by financing activities increased by $96.4 million to $97.3
million for 1996 compared to $927,000 for 1995. The increase resulted
primarily from net borrowings of $80 million during 1996 compared to $2.3
million in 1995. In addition, the Company received net proceeds of $24.1
million from the issuance of mandatorily redeemable preferred stock in 1996.
Cash provided by financing activities decreased $31.2 million to $927,000 for
1995 compared to $32.1 million for 1994. This decrease resulted primarily from
borrowings incurred in 1994 in connection with the 1994 Acquired Properties.
Net cash used in financing activities increased by $753,000 to $805,000 for
the three months ended March 31, 1997 compared to the net cash used of $52,000
for the three months ended March 31, 1996. The increase resulted from a $3.0
million cash distribution, offset by a $2.5 million draw on the Company's line
of credit.

FUNDS FROM OPERATIONS

FFO increased by $2.6 million, or 107%, to $5.0 million for 1996 compared to
$2.4 million for 1995. Pro forma FFO was $12.0 million for 1996. FFO increased
by $1.5 million, or 206%, to $2.2 million for the three months ended March 31,
1997 compared to $732,000 for 1996. Pro forma FFO was $4.9 million for the
three months ended March 31, 1997. The following reconciliation of net income
to FFO illustrates the difference between the two measures of operating
performance:

<TABLE>
<CAPTION>
HISTORICAL
FOR THE YEAR ENDED
THREE MONTHS ENDED MARCH 31, PRO FORMA FOR DECEMBER 31,
------------------------------- THE YEAR ENDED -------------------
PRO FORMA HISTORICAL HISTORICAL DECEMBER 31, 1996
1997(1) 1997 1996 (UNAUDITED)(1) 1996 1995
--------- ---------- ---------- ----------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income(2)(3)........ $2,235 $ (143) $319 $ 8,083 $ 2,175 $ 761
Add:
Special bonus(4)...... 353 353 -- -- -- --
Stock option
compensation(5)...... 394 394 -- -- -- --
Accrual of a post-
retirement bene-
fit(6)............... 632 632 -- 438 438 --
Depreciation and amor-
tization of Proper-
ties, improvements
and leasing costs.... 1,281 1,003 413 3,521 2,405 1,668
------ ------ ---- ------- --------- ---------
FFO(7).................. $4,895 $2,239 $732 $12,042 $ 5,018 $ 2,429
====== ====== ==== ======= ========= =========
</TABLE>
- --------
(1) Pro forma net income and FFO for the three months ended March 31, 1997 and
the year ended December 31, 1996 are presented as if the Offering, the
application of the net proceeds thereof as set forth in "Use of Proceeds,"
the Formation Transactions and the acquisition of the 1996 Acquired
Properties and the Acquisition LLC all had occurred on January 1, 1996.
For 1102 and 1124 Columbia

56
<PAGE>

Street (acquired May 31, 1996 by the Company), 14225 Newbrook Drive
(acquired January 13, 1997 by the Acquisition LLC) and 1330 Piccard Drive
(acquired January 15, 1997 by the Acquisition LLC), each of which was owner
occupied prior to their respective dates of purchase, no pro forma revenues
or expenses have been included in the pro forma net income for such periods
prior to purchase.

(2) In connection with the Offering, officers, directors and certain employees
will be granted an aggregate of 152,615 shares of the Company's Common
Stock. In addition, officers, directors and certain employees will receive
options to purchase 57,000 shares of Company Common Stock in substitution
for previously granted Holdings Stock Options. The Company will recognize
an additional $3,767,000 of compensation expense upon the granting of such
stock and options. This additional expense is not reflected in net income
for any historical or pro forma period set forth above but will be
recognized when the transaction is completed.

(3) In connection with the Offering, the Company will acquire the membership
interests in the Acquisition LLC for $58,857,000, which exceeds the
purchase price paid by the Acquisition LLC for the Acquisition LLC
Properties by $7,188,000. This difference will be accounted for as a
financing cost and recognized when the transaction is completed.

(4) Represents a $353,000 special bonus awarded to an officer of the Company
in connection with the Offering.

(5) Represents an accrual for $394,000 of non-recurring, non-cash compensation
expense relating to issuance of Holdings Stock Options. In connection with
the Offering, the holders of such options will receive options to purchase
shares of Common Stock of the Company in substitution therefor. These
substitute options will be exercised in connection with the Offering.

(6) This adjustment relates solely to the elimination of a non-cash accrual of
a one-time post-retirement benefit for an officer of the Company.

(7) The White Paper defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Management believes FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of the Company to
incur and service debt, and make capital expenditures. The Company
computes FFO in accordance with standards established by the White Paper,
which may differ from the methodology for calculating FFO utilized by
other equity REITs, and, accordingly, may not be comparable to such other
REITs. Further, FFO does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. See notes (9)
and (11) to the table under the caption "Distributions" and the notes to
the Company's historical financial statements. FFO should not be
considered as an alternative to net income (determined in accordance with
GAAP) as an indication of the Company's financial performance or to cash
flows from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
distributions.

INFLATION

Approximately 80% of the Company's leases (on a square footage basis) are
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, approximately 65% of the Company's leases (on
a square footage basis) contain effective annual rent escalations that are
either fixed (ranging from 2.5% to 4.0%) or indexed based on a CPI or other
index. Accordingly, the Company does not believe that its earnings or cash
flow are subject to any significant risk of inflation. An increase in
inflation, however, could result in an increase in the Company's variable rate
borrowing cost on future financing. See "Risk Factors--Real Estate Financing."
The Credit Facility will bear interest at a variable rate.

57
<PAGE>

THE PROPERTIES

GENERAL

The Properties range in size from approximately 30,000 to 250,000 square
feet, are built to accommodate single or multiple tenants and are generally
one or two story concrete tilt-up or block and steel frame structures. The
exteriors typically resemble traditional suburban office properties, but
interior infrastructures are designed to accommodate the needs of Life Science
Industry tenants. Such improvements typically are generic to Life Science
Industry tenants rather than specific to a particular tenant. As a result,
management believes that the improvements have long-term value and utility and
are readily usable by a wide range of Life Science Industry tenants. Generic
infrastructure improvements for each Property include: reinforced concrete
floors, upgraded roof loading capacity and increased floor to ceiling heights;
heavy-duty HVAC systems and advanced environmental control technology;
significantly upgraded electrical, gas and plumbing infrastructure; and
laboratory benches.

Upon consummation of the Offering and the Formation Transactions, the
Company will own 15 high quality, strategically located Life Science
Facilities containing approximately 1.5 million rentable square feet of office
and laboratory space in four markets: the San Diego area, the San Francisco
Bay area, Seattle and suburban Washington, D.C. All of the Properties have
been built or substantially renovated since 1984. As of April 30, 1997, the
Properties were approximately 98% leased.

Leases in the Company's multi-tenant buildings typically have terms of three
to seven years, while the single-tenant building leases typically have terms
of 10 to 20 years. Approximately 80% of the Company's leases (on a square
footage basis) are 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 to base rent. The remaining leases
are gross leases, pursuant to which tenants generally pay for substantially
all real estate taxes and insurance, common area and other operating expenses
above those for an established base year. Approximately 65% of the Company's
leases (on a square footage basis) contain effective annual rent escalations
that are either fixed (ranging from 2.5% to 4.0%) or indexed based on a CPI or
other index. In addition, approximately 80% of the Company's leases (on a
square footage basis) provide for the recapture of certain capital
expenditures (such as roof replacements, parking lot resurfacing and HVAC
systems maintenance expenditures), which the Company believes would typically
be borne by the landlord in traditional office leases. The leases also
typically give the Company the right to review and approve tenant alterations
to the property. Generally, tenant-installed improvements remain the property
of the Company after termination of the lease. However, the Company is
permitted under the terms of most of its leases to require that the tenant
remove such improvements and restore the premises to their original condition.

The Company manages 11 of the Properties, and the balance are managed by the
tenant or by property management firms. All material decisions with respect to
the Properties, however, are made by the Company.

58
<PAGE>

The following table sets forth certain information with respect to the
Properties:

San Francisco Bay
- -----------------
Area
----
1311 Harbor Bay 1984 30,000 17 30(11) 148,752 0.6 16.48 16.48
Parkway Alameda,
CA
1401 Harbor Bay 1986/1994 47,777 50 100 519,144 1.9 10.87 10.87
Parkway Alameda,
CA
1431 Harbor Bay 1985/1994 70,000 50 100 1,415,196 5.2 20.22 12.87
Parkway
Alameda, CA

Seattle, Washington
- -------------------
1102/1124 Columbia 1975/1997 213,397 64 100 4,959,792 18.1 23.24 23.01
Street Seattle,
WA(12)**

Suburban
- --------
Washington, D.C.
----------------
300 Professional 1989 48,440 23 100 669,840 2.4 13.83 13.83
Drive
Gaithersburg, MD
401 Professional 1987 62,739 75 100 1,038,564 3.8 16.55 16.55
Drive
Gaithersburg, MD
25/35/45 West 1989/1997 138,938 39 93 1,747,044 6.4 13.56 13.56
Watkins Mill Road
Gaithersburg,
MD(14)**
1413 Research 1967/1996 105,000 75 100 1,563,456 5.7 14.89 13.29
Boulevard
Rockville, MD
--------- --- --- ----------- ---- ------ ------
Subtotal/Weighted
Average (19): 1,031,070 61% 97% $20,613,996 75.1% $20.61 $19.07
<CAPTION>
PROPERTIES MAJOR TENANTS
- ---------- ------------------------
<S> <C>
San Diego
- ---------
10933 North
Torrey Pines
Road San Diego, The Scripps Research
CA(5)* Institute
Advanced Tissue
Sciences, Inc.
11099 North Torrey Agouron
Pines Road San Pharmaceuticals, Inc.
Diego, CA(6)*
Sequana Therapeutics,
Inc.
3535 General The Scripps Research
Atomics Court Institute
San Diego, CA(7)**
R.W. Johnson
Research Institute (8)
Syntro Corporation (9)
3565 General Agouron
Atomics Court San Pharmaceuticals, Inc.
Diego, CA(10)*

San Francisco Bay
- -----------------
Area
----
1311 Harbor Bay Chiron Corporation
Parkway Alameda,
CA
1401 Harbor Bay Chiron Diagnostics
Parkway Alameda,
CA
1431 Harbor Bay FDA
Parkway
Alameda, CA

Seattle, Washington
- -------------------
1102/1124 Columbia Fred Hutchinson Cancer
Street Seattle, Research Center
WA(12)**
Corixa Corporation
Swedish Medical Center
Suburban
- --------
Washington, D.C.
----------------
300 Professional Mobile Telesystems, Inc.
Drive
Gaithersburg, MD
Antex Biologics Inc.
401 Professional Gillette Capital
Drive Corporation (13)
Gaithersburg, MD
25/35/45 West Genetic Therapy,
Watkins Mill Road Inc. (15)
Gaithersburg, MedImmune, Inc.
MD(14)**
1413 Research U.S. Army Corps of
Boulevard Engineers
Rockville, MD
Subtotal/Weighted
Average (19):
</TABLE>

59
<PAGE>

<TABLE>
<CAPTION>
ANNUALIZED
PERCENTAGE OF BASE
AGGREGATE RENT PER ANNUALIZED
APPROXIMATE PORTFOLIO LEASED NET EFFECTIVE
YEAR BUILT/ RENTABLE PERCENTAGE PERCENTAGE ANNUALIZED ANNUALIZED SQUARE RENT PER LEASED
PROPERTIES RENOVATED (1) SQUARE FEET LAB SPACE LEASED (2) BASE RENT(3) BASE RENT FOOT (3) SQUARE FOOT (4)
- ---------- ------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION LLC
PROPERTIES (16)
- ----------------
Suburban
- --------
Washington, D.C.
----------------
1550 East Gude 1981/1995 44,500 40 100 $ 597,216 2.2 $13.42 $13.42
Drive
Rockville, MD
1330 Piccard Drive 1978/1995 131,511 75 100 1,903,656 6.9 14.48 14.48
Rockville, MD
14225 Newbrook 1992 248,186 60 100 4,340,256 15.8 17.49 17.49
Drive
Chantilly,
VA(18)**
--------- --- --- ----------- ----- ------ ------
Subtotal/Weighted
Average (19): 424,197 63% 100% $ 6,841,128 24.9% $16.13 $16.13
--------- --- --- ----------- ----- ------ ------
Total/Weighted
Average (19): 1,455,267 61% 98% $27,455,124 100.0% $19.28 $18.20
========= === === =========== ===== ====== ======
<CAPTION>
PROPERTIES MAJOR TENANTS
- ---------- ----------------------
<S> <C>
ACQUISITION LLC
PROPERTIES (16)
- ----------------
Suburban
- --------
Washington, D.C.
----------------
1550 East Gude Quest
Drive Diagnostics, Inc. (17)
Rockville, MD
1330 Piccard Drive PerImmune, Inc.
Rockville, MD
14225 Newbrook American Medical
Drive Laboratories, Inc.
Chantilly,
VA(18)**
Subtotal/Weighted
Average (19):
Total/Weighted
Average (19):
</TABLE>
- -------
* Gross revenues from the Property for the year ended December 31, 1996
represent in excess of 10% of the aggregate gross revenues of the Company
for such period.
** Book value of the Property represents in excess of 10% of the Company's
total assets as of December 31, 1996 and gross revenues from the Property
for the year ended December 31, 1996 represent in excess of 10% of the
aggregate gross revenues of the Company for such period.
(1) Includes year in which construction was completed and, where applicable,
year of most recent major renovation.
(2) Based on all leases at the respective Property in effect as of April 30,
1997.
(3) Annualized Base Rent means the annualized fixed base rental amount in
effect as of April 30, 1997 (using rental revenue calculated on a
straight-line basis in accordance with GAAP). In the case of triple net
leases, Annualized Base Rent does not include real estate taxes and
insurance, common area and other operating expenses, substantially all of
which are borne by the tenants. This amount, divided by the rentable
square feet leased at the Property as of April 30, 1997, is the
Annualized Base Rent per Leased Square Foot.
(4) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
April 30, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized
tenant improvements and leasing commissions. This amount, divided by the
rentable square feet leased at the Property as of April 30, 1997, is the
Annualized Net Effective Rent per Leased Square Foot.
(5) The actual rent paid per leased square foot as of December 31, 1996,
1995, 1994, 1993 and 1992 was $21.10, $20.35, $20.62, $20.17 and $20.41,
respectively.
(6) The actual rent paid per leased square foot as of December 31, 1996,
1995, 1994, 1993 and 1992 was $25.07, $25.35, $11.37, $24.93 and $23.97,
respectively.
(7) The actual rent paid per leased square foot as of December 31, 1996,
1995, 1994, 1993 and 1992 was $32.49, $32.59, $31.17, $30.46 and $29.04,
respectively.
(8) The R.W. Johnson Research Institute is a wholly owned subsidiary of
Johnson & Johnson.
(9) Syntro Corporation is a wholly owned subsidiary of Mallinckrodt, Inc.
(10) The actual rent paid per leased square foot as of December 31, 1996,
1995, 1994, 1993 and 1992 was $32.85, $32.85, $30.37, $30.37 and $28.08,
respectively.
(11) Vacancy represents 20,973 square feet of office space. The Company is in
lease negotiations with respect to all of the vacant office space.
(12) The actual rent paid per leased square foot as of December 31, 1996 was
$22.70. The actual rent paid per square foot is not presented for the
years prior to acquisition by the Company because the Property was
previously owner occupied and, therefore, there were no rental revenues.
(13) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette
Company.
(14) The actual rent paid per leased square foot as of December 31, 1996,
1995, 1994, 1993 and 1992 was $12.15, $12.46, $12.41, $11.46 and $10.78,
respectively.
(15) Genetic Therapy, Inc. is a wholly owned subsidiary of Novartis AG.
(16) Represents Properties to be acquired through the acquisition of the
Acquisition LLC in connection with the Offering and the Formation
Transactions. See "Formation and Structure."
(17) Quest Diagnostics, Inc. subleases its space to Shire Laboratory, Inc., a
wholly owned subsidiary of Shire Pharmaceuticals Group p.l.c.
(18) The actual rent paid per leased square foot is not presented for the
years prior to acquisition by the Acquisition LLC because the Property
was previously owner occupied and, therefore, there were no rental
revenues.
(19) Weighted Average based on a percentage of aggregate leased square feet.

60
<PAGE>

LOCATION AND TYPE OF SPACE

The following table sets forth, as of April 30, 1997, the space within the
Properties by rentable square footage in each of the Company's existing
markets.

LOCATION AND TYPE OF SPACE OF PROPERTIES

<TABLE>
<CAPTION>
APPROXIMATE RENTAL SQUARE FOOTAGE
-------------------------------------- PERCENTAGE
GEOGRAPHIC AREA LABORATORY OFFICE TOTAL OF TOTAL
--------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
San Diego............... 232,948 81,831 314,779 21.6%
San Francisco Bay Area.. 63,958 83,819 147,777 10.2%
Seattle................. 136,588 76,809 213,397 14.7%
Suburban Washington,
D.C. (1)............... 457,130 322,184 779,314 53.5%
---------- ---------- ------------ -----
Total................. 890,624 564,643 1,455,267 100.0%
========== ========== ============ =====
Percentage of Total
Rentable Square
Footage.............. 61.2% 38.8% 100.0%
========== ========== ============
</TABLE>
- --------
(1) Includes 265,345 laboratory rentable square footage and 158,852 office
rentable square footage attributable to the Acquisition LLC Properties,
representing 54.4% of the Company's Total Rentable Square Footage in the
Suburban Washington, D.C. geographic area.

LEASE EXPIRATIONS

The following table sets forth scheduled lease expirations for leases in
effect at the Properties as of April 30, 1997, through the year 2016. The
table assumes that no tenants exercise renewal options or termination rights.

SCHEDULED LEASE EXPIRATIONS

<TABLE>
<CAPTION>
APPROXIMATE
RENTABLE SQUARE PERCENTAGE OF TOTAL ANNUALIZED BASE PERCENTAGE OF
NUMBER FOOTAGE SUBJECT RENTABLE SQUARE FOOTAGE RENT UNDER TOTAL ANNUALIZED BASE
YEAR OF OF LEASES TO EXPIRING REPRESENTED EXPIRING RENT REPRESENTED
LEASE EXPIRATION EXPIRING LEASES(1) BY EXPIRING LEASES LEASES ($000)(2) BY EXPIRING LEASES(3)
- ---------------- --------- --------------- ----------------------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
1997(4)................. 1 2,200 0.2% $ 47 0.2%
1998.................... 4 105,700 7.3 2,085 7.6
1999.................... 7 195,800 13.5 3,667 13.4
2000.................... 5 174,200 12.0 3,848 14.0
2001.................... 4 193,000 13.3 4,158 15.1
2002.................... 0 -- -- -- --
2003.................... 2 35,300 2.4 410 1.5
2004(5)................. 2 70,100 4.8 1,447 5.3
2005.................... 1 64,000 4.4 1,949 7.1
2006(6)................. 2 134,000 9.2 2,185 8.0
2007.................... 1 131,500 9.0 1,904 6.9
2014(7)................. 1 70,000 4.8 1,415 5.1
2015.................... 0 -- -- -- --
2016.................... 1 248,200 17.0 4,340 15.8
--- --------- ---- ------- -----
Total................. 31 1,424,000(8) 97.9% $27,455 100.0%
=== ========= ==== ======= =====
</TABLE>
- --------
(1) Excludes rentable square footage for expiring lease where the space has
been re-leased to new tenants. Such space is included in the year of the
new lease's expiration. Includes rentable square footage subject to
expiring leases at the Acquisition LLC Properties.
(2) Annualized Base Rent means the annualized fixed base rental amount in
effect as of April 30, 1997 (using rental revenue computed on a straight-
line basis in accordance with GAAP). In the case of triple net leases,
Annualized Base Rent does not include real estate taxes and insurance,
common area and other operating expenses, substantially all of which are
borne by the tenants.
(3) Calculated by dividing Annualized Base Rent for the respective year of
lease expiration by the total Annualized Base Rent.
(4) The Company's lease with E. Heller & Company is the only lease
contractually expiring in 1997. The Company is negotiating with E. Heller
& Company to extend its lease to 2002 and to expand its space from 2,200
square feet to approximately 8,000 square feet.
(5) The Company's leases with the Fred Hutchinson Cancer Research Center,
covering 70,089 square feet at 1102/1124 Columbia Street, were recently
extended to 2004. The Fred Hutchinson Cancer Research Center, however, may
terminate the leases at any time after November 30, 1999 upon 12 months
prior written notice.
(6) The Company's lease with MedImmune, Inc., covering 71,225 square feet at
25/35/45 West Watkins Mill Road, expires in 2006. The terms of the lease
allow MedImmune to terminate all or part of the lease at various dates
upon six to 12 months notice and the payment of a termination penalty
determined based on the date of termination.
(7) No leases are subject to expiration in the years 2008 to 2013, inclusive.
(8) Excludes 31,046 square feet of vacant office space, as of April 30, 1997.

61
<PAGE>

LEASE EXPIRATIONS--PROPERTY BY PROPERTY

The following table sets forth detailed lease information for each of the
Properties for leases in place as of April 30, 1997, assuming that no tenants
exercise renewal options or termination rights at or prior to the scheduled
expirations.

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
------------------------------------------------------------------------------------------
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL
- -------- ------- -------- ---------- ---------- ---------- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10933 NORTH TORREY PINES
ROAD
Square Footage of
Expiring Leases........ 23,609 84,524 108,133
Percentage of Total
Rentable Sq. Ft. ...... 1.6% 5.8% 7.4%
Annualized Base Rent of
Expiring Leases(2)..... $ 587,700 $1,720,860 $2,308,560
Percentage of Total
Annualized Base Rent... 2.1% 6.3% 8.4%
Annualized Base Rent
Per Square Foot of
Expiring Leases........ $ 24.89 $ 20.36 $ 21.35
Number of Leases
Expiring............... 1 2 3
11099 NORTH TORREY PINES
ROAD
Square Footage of
Expiring Leases........ 4,508 26,906 55,548 86,962
Percentage of Total
Rentable Sq. Ft. ...... 0.3% 1.8% 3.8% 5.9%
Annualized Base Rent of
Expiring Leases(2)..... $160,536 $ 783,324 $1,263,132 $2,206,992
Percentage of Total
Annualized Base Rent... 0.6% 2.9% 4.6% 8.1%
Annualized Base Rent
Per Square Foot of
Expiring Leases........ $35.61 $ 29.11 $ 22.74 $ 25.38
Number of Leases
Expiring............... 1 1 1 3
3535 GENERAL ATOMICS
COURT
Square Footage of
Expiring Leases........ 57,775 18,309 76,084
Percentage of Total
Rentable Sq. Ft. ...... 4.0% 1.3% 5.3%
Annualized Base Rent of
Expiring Leases(2)..... $1,763,544 $ 746,160 $2,509,704
Percentage of Total
Annualized Base Rent... 6.4% 2.7% 9.1%
Annualized Base Rent
Per Square Foot of
Expiring Leases........ $ 30.52 $ 40.75 $ 32.99
Number of Leases
Expiring............... 2 1 3
3565 GENERAL ATOMICS
COURT
Square Footage of
Expiring Leases........ 43,600 43,600
Percentage of Total
Rentable Sq. Ft. ...... 3.0% 3.0%
Annualized Base Rent of
Expiring Leases(2)..... $1,526,952 $1,526,952
Percentage of Total
Annualized Base Rent... 5.6% 5.6%
Annualized Base Rent
Per Square Foot of
Expiring Leases........ $ 35.02 $ 35.02
Number of Leases
Expiring............... 1 1
1311 HARBOR BAY PARKWAY
Square Footage of
Expiring Leases........ 2,225 6,802 9,027
Percentage of Total
Rentable Sq. Ft. ...... 0.2% 0.5% 0.7%
Annualized Base Rent of
Expiring Leases(2)..... $46,716 $ 102,036 $ 148,752
Percentage of Total
Annualized Base Rent... 0.2% 0.4% 0.6%
Annualized Base Rent
Per Square Foot of
Expiring Leases........ $ 21.00 $ 15.00 $ 16.48
Number of Leases
Expiring............... 1 1 2
</TABLE>
- ----
(1) Represents lease expiration data from April 30, 1997 to December 31, 1997.
(2) Annualized Base Rent means the annualized fixed base rental amount in
effect as of April 30, 1997 (using rental revenues computed on a straight-
line basis in accordance with GAAP). In the case of triple net leases,
Annualized Base Rent does not include real estate taxes and insurance,
common area and other operating expenses, substantially all of which are
borne by the tenants.
(3) This Property has no leases expiring during the 10 year period presented.
(4) Portions of two leases at 1102/1124 Columbia Street and one lease at 1413
Research Boulevard expire in different years. Each portion of the lease is
indicated in this table in the year that portion expires.
(5) In addition to the base rent shown, this tenant, MedImmune, Inc., pays
$322,000 per year in reimbursements for improvements installed by the
prior owner of the property. These payments, which are accounted for as
tenant recovery revenue, continue through the term of the lease. The terms
of the lease with MedImmune allow it to terminate all or part of the lease
at various dates upon six to 12 months notice and the payment of a
termination penalty determined based on the date of the termination. In
the event of such early termination, the remaining amount due over the
term of the lease for improvements must be paid in full.

62
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
------------------------------------------------------------------------------------------------------------------
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL
- -------- ------- ---------- ---------- ---------- ---------- ----- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1401 HARBOR BAY
PARKWAY
Square Footage
of Expiring
Leases......... 47,777 47,777
Percentage of
Total Rentable
Sq. Ft. ....... 3.3% 3.3%
Annualized Base
Rent of
Expiring
Leases(2)...... $519,144 $ 519,144
Percentage of
Total
Annualized Base
Rent........... 1.9% 1.9%
Annualized Base
Rent Per Square
Foot of
Expiring
Leases......... $ 10.87 $ 10.87
Number of
Leases
Expiring....... 1 1

1431 HARBOR BAY
PARKWAY(3)
Square Footage
of Expiring
Leases......... 0
Percentage of
Total Rentable
Sq. Ft. ....... 0.0%
Annualized Base
Rent of
Expiring
Leases(2)...... $ 0
Percentage of
Total
Annualized Base
Rent........... 0.0%
Annualized Base
Rent Per Square
Foot of
Expiring
Leases......... $ 0.00
Number of
Leases
Expiring....... 0

1102/1124
COLUMBIA STREET
Square Footage
of Expiring
Leases(4)...... 64,482 14,820 70,089 64,006 213,397
Percentage of
Total Rentable
Sq. Ft. ....... 4.5% 1.0% 4.8% 4.4% 14.7%
Annualized Base
Rent of
Expiring
Leases(2)...... $1,467,096 $ 96,564 $1,446,684 $1,949,448 $4,959,792
Percentage of
Total
Annualized Base
Rent........... 5.3% 0.4% 5.3% 7.1% 18.1%
Annualized Base
Rent Per Square
Foot of
Expiring
Leases......... $ 22.75 $ 6.52 $ 20.64 $ 30.46 $ 23.24
Number of
Leases
Expiring....... 1 1 2 1 5

300 PROFESSIONAL
DRIVE
Square Footage
of Expiring
Leases......... 33,386 15,054 48,440
Percentage of
Total Rentable
Sq. Ft. ....... 2.3% 1.0% 3.3%
Annualized Base
Rent of
Expiring
Leases(2)...... $ 410,376 $259,464 $ 669,840
Percentage of
Total
Annualized Base
Rent........... 1.5% 0.9% 2.4%
Annualized Base
Rent Per Square
Foot of
Expiring
Leases......... $ 12.29 $ 17.24 $ 13.83
Number of
Leases
Expiring....... 1 1 2

401 PROFESSIONAL
DRIVE
Square Footage
of Expiring
Leases......... 62,739 62,739
Percentage of
Total Rentable
Sq. Ft. ....... 4.3% 4.3%
Annualized Base
Rent of
Expiring
Leases(2)...... $1,038,564 $1,038,564
Percentage of
Total
Annualized Base
Rent........... 3.8% 3.8%
Annualized Base
Rent Per Square
Foot of
Expiring
Leases......... $ 16.55 $ 16.55
Number of
Leases
Expiring....... 1 1
</TABLE>
- ----
(1) Represents lease expiration data from April 30, 1997 to December 31, 1997.
(2) Annualized Base Rent means the annualized fixed base rental amount in
effect as of April 30, 1997 (using rental revenues computed on a straight-
line basis in accordance with GAAP). In the case of triple net leases,
Annualized Base Rent does not include real estate taxes and insurance,
common area and other operating expenses, substantially all of which are
borne by the tenants.
(3) This Property has no leases expiring during the 10 year period presented.
(4) Portions of two leases at 1102/1124 Columbia Street and one lease at 1413
Research Boulevard expire in different years. Each portion of the lease is
indicated in this table in the year that portion expires.
(5) In addition to the base rent shown, this tenant, MedImmune, Inc., pays
$322,000 per year in reimbursements for improvements installed by the
prior owner of the property. These payments, which are accounted for as
tenant recovery revenue, continue through the term of the lease. The terms
of the lease with MedImmune allow it to terminate such lease at various
dates during the lease upon six to 12 months notice and the payment of a
termination penalty determined based on the date of the termination. In
the event of such early termination, the remaining amount due over the
term of the lease for improvements as described above shall be paid in
full.

63
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
--------------------------------------------------------------------------
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003
- -------- ------- ---------- ---------- ---------- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
25/35/45 WEST
WATKINS MILL ROAD
Square Footage
of Expiring
Leases.......... 3,370 18,924 35,346
Percentage of
Total Rentable
Sq. Ft. ........ 0.2% 1.3% 2.4%
Annualized Base
Rent of Expiring
Leases(2)....... $ 46,920 $ 143,436 $410,160
Percentage of
Total Annualized
Base Rent....... 0.2% 0.5% 1.5%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 13.92 $ 7.58 $ 11.60
Number of Leases
Expiring........ 1 1 2
1413 RESEARCH
BOULEVARD
Square Footage
of Expiring
Leases(4)....... 30,000 75,000
Percentage of
Total Rentable
Sq. Ft. ........ 2.1% 5.2%
Annualized Base
Rent of Expiring
Leases(2)....... $ 338,700 $1,224,756
Percentage of
Total Annualized
Base Rent....... 1.2% 4.5%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 11.29 $ 16.33
Number of Leases
Expiring........ 0(4) 1
1550 EAST GUDE
DRIVE
Square Footage
of Expiring
Leases.......... 44,500
Percentage of
Total Rentable
Sq. Ft. ........ 3.1%
Annualized Base
Rent of Expiring
Leases(2)....... $ 597,216
Percentage of
Total Annualized
Base Rent....... 2.2%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 13.42
Number of Leases
Expiring........ 1
1330 PICCARD
DRIVE(3)
Square Footage
of Expiring
Leases..........
Percentage of
Total Rentable
Sq. Ft. ........
Annualized Base
Rent of Expiring
Leases(2).......
Percentage of
Total Annualized
Base Rent.......
Annualized Base
Rent Per Square
Foot of Expiring
Leases..........
Number of Leases
Expiring........
14225 NEWBROOK
DRIVE(3)
Square Footage
of Expiring
Leases..........
Percentage of
Total Rentable
Sq. Ft. ........
Annualized Base
Rent of Expiring
Leases(2).......
Percentage of
Total Annualized
Base Rent.......
Annualized Base
Rent Per Square
Foot of Expiring
Leases..........
Number of Leases
Expiring........
TOTAL PORTFOLIO
Square Footage
of Expiring
Leases.......... 2,225 105,746 195,837 174,239 193,072 0 35,346
Percentage of
Total Rentable
Sq. Ft. ........ 0.2% 7.3% 13.5% 12.0% 13.3% 0.0% 2.4%
Annualized Base
Rent of Expiring
Leases(2)....... $46,716 $2,084,928 $3,667,152 $3,847,560 $4,158,276 $ 0 $410,160
Percentage of
Total Annualized
Base Rent....... 0.2% 7.6% 13.4% 14.0% 15.1% 0.0% 1.5%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 21.00 $ 19.72 $ 18.73 $ 22.08 $ 21.54 $0.00 $ 11.60
Number of Leases
Expiring........ 1 4 7 5 4 0 2

<CAPTION>
YEAR OF LEASE EXPIRATION
-------------------------------------------------
PROPERTY 2004 2005 2006 TOTAL
- -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
25/35/45 WEST
WATKINS MILL ROAD
Square Footage
of Expiring
Leases.......... 71,225 128,865
Percentage of
Total Rentable
Sq. Ft. ........ 4.9% 8.8%
Annualized Base
Rent of Expiring
Leases(2)....... $1,146,528(5) $ 1,747,044
Percentage of
Total Annualized
Base Rent....... 4.2% 6.4%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 16.10 $ 13.56
Number of Leases
Expiring........ 1 5
1413 RESEARCH
BOULEVARD
Square Footage
of Expiring
Leases(4)....... 105,000
Percentage of
Total Rentable
Sq. Ft. ........ 7.3%
Annualized Base
Rent of Expiring
Leases(2)....... $ 1,563,456
Percentage of
Total Annualized
Base Rent....... 5.7%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 14.89
Number of Leases
Expiring........ 1
1550 EAST GUDE
DRIVE
Square Footage
of Expiring
Leases.......... 44,500
Percentage of
Total Rentable
Sq. Ft. ........ 3.1%
Annualized Base
Rent of Expiring
Leases(2)....... $ 597,216
Percentage of
Total Annualized
Base Rent....... 2.2%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 13.42
Number of Leases
Expiring........ 1
1330 PICCARD
DRIVE(3)
Square Footage
of Expiring
Leases.......... 0
Percentage of
Total Rentable
Sq. Ft. ........ 0.0%
Annualized Base
Rent of Expiring
Leases(2)....... $ 0
Percentage of
Total Annualized
Base Rent....... 0.0%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 0
Number of Leases
Expiring........ 0
14225 NEWBROOK
DRIVE(3)
Square Footage
of Expiring
Leases.......... 0
Percentage of
Total Rentable
Sq. Ft. ........ 0.0%
Annualized Base
Rent of Expiring
Leases(2)....... $ 0
Percentage of
Total Annualized
Base Rent....... 0.0%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 0
Number of Leases
Expiring........ 0
TOTAL PORTFOLIO
Square Footage
of Expiring
Leases.......... 70,089 64,006 133,964 974,524
Percentage of
Total Rentable
Sq. Ft. ........ 4.8% 4.4% 9.2% 67.1%
Annualized Base
Rent of Expiring
Leases(2)....... $1,446,684 $1,949,448 $2,185,092 $19,796,016
Percentage of
Total Annualized
Base Rent....... 5.3% 7.1% 8.0% 72.2%
Annualized Base
Rent Per Square
Foot of Expiring
Leases.......... $ 20.64 $ 30.46 $ 16.31 $ 20.31
Number of Leases
Expiring........ 2 1 2 28
</TABLE>

- ------------
(1) Represents lease expiration data from April 30, 1997 to December 31, 1997.
(2) Annualized Base Rent means the annualized fixed base rental amount in
effect as of April 30, 1997 (using rental revenues computed on a straight-
line basis in accordance with GAAP). In the case of triple net leases,
Annualized Base Rent does not include real estate taxes and insurance,
common area and other operating expenses, substantially all of which are
borne by the tenants.
(3) This Property has no leases expiring during the 10 year period presented.
(4) Portions of two leases at 1102/1124 Columbia Street and one lease at 1413
Research Boulevard expire in different years. Each portion of the lease is
indicated in this table in the year that portion expires.
(5) In addition to the base rent shown, this tenant, MedImmune, Inc., pays
$322,000 per year in reimbursements for improvements installed by the
prior owner of the property. These payments, which are accounted for as
tenant recovery revenue, continue through the term of the lease. The terms
of the lease with MedImmune allow it to terminate such lease at various
dates during the lease upon six to 12 months notice and the payment of a
termination penalty determined based on the date of the termination. In
the event of such early termination, the remaining amount due over the
term of the lease for improvements as described above shall be paid in
full.

64
<PAGE>

TENANTS

The Properties are leased to tenants engaged in a variety of activities in
the Life Science Industry. The following table sets forth information
regarding the Company's leases with its 20 largest tenants based upon
Annualized Base Rent as of April 30, 1997.

20 LARGEST TENANTS

<TABLE>
<CAPTION>
PERCENTAGE OF
REMAINING PERCENTAGE OF PERCENTAGE OF AGGREGATE
INITIAL APPROXIMATE AGGREGATE AGGREGATE PORTFOLIO
NUMBER LEASE TERM AGGREGATE LEASED ANNUALIZED PORTFOLIO ANNUALIZED NET ANNUALIZED
OF IN RENTABLE SQUARE BASE RENT ANNUALIZED EFFECTIVE RENT NET EFFECTIVE
TENANT(1) LEASES YEARS(2) SQUARE FEET FEET (IN THOUSANDS)(3) BASE RENT (IN THOUSANDS)(4) RENT
--------- ------ ---------- ----------- ------------- ----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American
Medical......... 1 19.7 248,200 17.4% $ 4,340 15.8% $ 4,340 16.7%
Laboratories,
Inc.
Fred Hutchinson
Cancer.......... 2 1.1 159,200 11.2 3,654 13.3 3,654 14.1
7.6
Research
Center(5)
Agouron
Pharmaceuticals,
Inc............. 2 4.4 70,500 5.0 2,310 8.4 2,251 8.7
3.4
PerImmune, Inc... 1 9.8 131,500 9.2 1,904 6.9 1,904 7.3
Advanced Tissue
Sciences,....... 2 3.4 84,500 5.9 1,721 6.3 1,353 5.2
Inc.
U.S. Army Corps.. 1 2.1 105,000 7.4 1,563 5.7 1,396 5.4
of Engineers(6) 4.4
FDA.............. 1 16.8 70,000 4.9 1,415 5.2 901 3.5
R.W. Johnson
Pharmaceutical.. 1 1.8 45,000 3.2 1,334 4.9 1,267 4.9
Research
Institute
The Scripps
Research
Institute....... 2 3.1 41,900 2.9 1,334 4.9 1,106 4.3
2.4
Sequana
Therapeutics,
Inc............. 1 4.7 55,500 3.9 1,263 4.6 1,195 4.6
Corixa
Corporation..... 2 7.7 37,600 2.6 1,198 4.4 1,150 4.5
1.1
MedImmune,
Inc.(7)......... 1 9.6 71,200 5.0 1,147 4.2 1,147 4.4
Gillette Capital
Corporation..... 1 8.9 62,700 4.4 1,039 3.8 1,039 4.0
Quest
Diagnostics,
Inc............. 1 2.9 44,500 3.1 597 2.2 597 2.3
Chiron
Diagnostics..... 1 2.7 47,800 3.4 519 1.9 519 2.0
Syntro
Corporation..... 1 2.7 12,800 0.9 430 1.6 430 1.7
Mobile
Telesystems,
Inc............. 1 1.7 33,400 2.3 410 1.5 410 1.6
Antex Biologics,
Inc............. 1 1.8 15,100 1.1 259 0.9 259 1.0
Genetic Therapy,
Inc............. 1 6.3 20,600 1.4 229 0.8 229 0.9
Photo Science,
Inc............. 1 6.2 14,800 1.0 182 0.7 182 0.7
--- ---- --------- ---- ------- ---- ------- ----
Total/Weighted
Average(8)..... 25 8.4 1,371,800 96.2% $26,848 98.0% $25,329 97.8%
=== ==== ========= ==== ======= ==== ======= ====
</TABLE>
- -----------
(1) American Medical Laboratories, Inc., PerImmune, Inc. and Quest
Diagnostics, Inc. are tenants at the Acquisition LLC Properties.
(2) Renewal options for tenants leasing over 10% of the rentable space at
Properties with a book value in excess of 10% of the Company's total
assets as of December 31, 1996 or with gross revenues for the year ended
December 31, 1996 in excess of 10% of the aggregate gross revenues of the
Company for such period are as follows: (i) American Medical Laboratories,
Inc., two five-year renewal options; (ii) Fred Hutchinson Cancer Research
Center, none; (iii) Agouron Pharmaceuticals, Inc., (a) 11099 N. Torrey
Pines: one one-year renewal option and three five-year renewal options
thereafter and (b) 3565 General Atomics Court, three five-year renewal
options; (iv) Advanced Tissue Sciences, Inc., one five-year renewal
option; (v) R.W. Johnson Pharmaceutical Research Institute, two one-year
renewal options; (vi) The Scripps Research Institute, (a) 10933 N. Torrey
Pines Road, two two-year renewal options and (b) 3535 General Atomics
Court, two five-year renewal options; (vii) Sequana Therapeutics, Inc.,
two five-year renewal options; (viii) Corixa Corporation, two five-year
renewal options; (ix) MedImmune, Inc., two five-year renewal options; (x)
Syntro Corporation, one five-year renewal option; (xi) Genetic Therapy,
Inc., none; and (xii) Photo Science, Inc., one 4.5-year renewal option.
(3) Annualized Base Rent means the annualized fixed base rental amount in
effect as of April 30, 1997 (using rental revenues computed on a straight-
line basis in accordance with GAAP) paid by tenants under the terms of
their leases. In the case of triple net leases, Annualized Base Rent does
not include real estate taxes and insurance, common area and other
operating expenses, substantially all of which are borne by the tenants.
(4) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
April 30, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized
tenant improvements and leasing commissions.
(5) Portions of the Company's leases with the Fred Hutchinson Cancer Research
Center, covering 70,089 square feet at 1102/1124 Columbia Street, were
recently extended to 2004. The Fred Hutchinson Cancer Research Center,
however, has the right to terminate the leases at any time after
November 30, 1999, upon 12 months prior written notice.
(6) Of the 105,000 rentable square feet at 1413 Research Boulevard, leases
with respect to 30,000 square feet are subject to expiration in 1999 and
leases with respect to 75,000 rentable square feet are subject to
expiration in 2001.
(7) In addition to the base rent shown, MedImmune, Inc. pays $322,000 per year
in reimbursements for improvements installed by the prior owner of the
property. These payments, which are accounted for as tenant recovery
revenue, continue through the term of the lease. The terms of the lease
with MedImmune allow it to terminate such lease at various dates during
the lease upon six to 12 months notice and the payment of a termination
penalty determined based on the date of the termination. In the event of
such early termination, the remaining amount due over the term of the
lease for improvements as described above must be paid in full.
(8) Weighted Average based on percentage of aggregate leased square feet.

65
<PAGE>

PROPERTY DESCRIPTIONS

Following are narrative descriptions of each of the Properties. The book
value of each of 3535 General Atomics Court, 1102 and 1124 Columbia Street,
25, 35 and 45 West Watkins Mill Road and 14225 Newbrook Drive was in excess of
10% of the Company's total assets as of December 31, 1996, and the gross
revenues from each such Property for the year ended December 31, 1996 were in
excess of 10% of the aggregate gross revenues of the Company for such period.
In addition, the gross revenues from each of 3565 General Atomics Court,
10933 North Torrey Pines Road and 11099 North Torrey Pines Road for the year
ended December 31, 1996 was in excess of 10% of the aggregate gross revenues
of the Company for such period. Accordingly, certain additional information
with respect to each such Property, including historical occupancy and
property tax rates and amounts, is set forth below. The Company's ownership
interest in each of the Properties (and the ownership interest the Company
will acquire in each of the Acquisition LLC Properties) is subject to existing
leases, easements and encumbrances that, in the opinion of the Company, are
customary for such properties. Information with respect to occupancy and
average rental rates for periods prior to acquisition by the Company is based
on information provided by previous owners or derived from Company records.

CALIFORNIA

San Diego

10933 North Torrey Pines Road is located in the Torrey Pines area of San
Diego, California. The Property consists of approximately 108,000 rentable
square feet of office and laboratory space, with extended frontage along North
Torrey Pines Road. The Property, built in 1971 and substantially renovated in
1989 and 1994, is fully leased to two tenants: The Scripps Research Institute,
one of the nation's largest non-profit biomedical research institutes, and
Advanced Tissue Sciences, Inc., a publicly traded company focusing on the
development and sale of artificial tissue products, each of which leases over
10% of the rentable space. The Property was 100% leased as of December 31,
1996, 89% leased as of December 31, 1995 and 85% leased as of December 31,
1994. Prior to acquisition by the Company, the Property contained a
significant portion of warehouse space, which was subsequently converted to
laboratory and office space. The Property was 59% leased as of December 31,
1993 and 44% leased as of December 31, 1992. The Company acquired this
Property in October 1994 and installed new HVAC and computerized energy
management systems in May 1995. These upgrades have enabled the Company to
measure more accurately and recover from each tenant certain costs of utility
usage that previously were not recoverable. The Company owns fee simple title
to the Property.

The Property is situated on approximately 16 acres of land. The Company has
the right to develop and construct up to an additional 163,000 square feet of
office and laboratory space on this parcel. The Company has applied for
extension of conditional approvals from the City of San Diego and the
California Coastal Commission for such development. The approvals are
conditioned upon, among other things, the completion of certain off-site
roadway and utility improvements and the submission of acceptable grading and
building plans. The Company intends to maximize the site's value by developing
build-to-suit facilities for specific tenants and to enter into long-term
triple net leases with such tenants prior to construction. The Company
believes that it has a competitive advantage in completing a build-to-suit
project because of its low cost basis in the land and the superior North
Torrey Pines Road location.

The Company's tax basis in the Property for federal income tax purposes as
of March 31, 1997 was approximately $9.9 million. The Property is depreciated
using the modified accelerated cost recovery system straight-line method,
based on an estimated useful life ranging from 20 to 40 years, depending upon
the date of certain capitalized improvements. For the three months ended March
31, 1997, the estimated annualized average depreciation rate for the Property
under the modified accelerated cost recovery system was 2.8%. The 1996 realty
taxes on the Property were assessed at an effective annual rate of
approximately 1.118%. Such taxes on the Property for the 12 month period
ending June 30, 1997 totaled approximately $116,900. The Company does not
believe that any capital improvements made during the 12 month period
immediately following the Offering should result in an increase in annual
property taxes.

66
<PAGE>

11099 North Torrey Pines Road is located in the Torrey Pines Science Park in
San Diego, California. This two-story "L" shaped Property, consisting of
approximately 87,000 rentable square feet of office and laboratory space, has
three levels of subterranean parking, garage storage, a 5,000 square foot
central enclosed atrium and exterior patio terraces. The project was completed
in 1986 and acquired by the Company in October 1994. The Property has
benefitted from over $4.0 million of tenant-financed generic infrastructure
improvements and is 100% leased to the following tenants: Agouron
Pharmaceuticals, Inc., a publicly traded company focusing on the development
and sale of synthetic drugs for viral, cancer and immuno-inflammatory
diseases; Sequana Therapeutics, Inc., a publicly traded company focusing on
the development of diagnostic and therapeutic products utilizing gene
discovery technology; and Cytel Corporation, a publicly traded company
focusing on therapeutics to treat acute and inflammatory diseases. Each of
Agouron Pharmaceuticals, Inc. and Sequana Therapeutics, Inc. leases over 10%
of the rentable space. The Property was 100% leased as of December 31, 1996
and 1995, 75% leased as of December 31, 1994 and 100% leased as of December
31, 1993 and 1992. The Company owns fee simple title to the Property.

The Company's tax basis in the Property for federal income tax purposes as
of March 31, 1997 was approximately $13.5 million. The Property is depreciated
using the modified accelerated cost recovery system straight-line method,
based on an estimated useful life ranging from 20 to 40 years, depending upon
the date of certain capitalized improvements. For the three months ended March
31, 1997, the estimated annualized average depreciation rate for the Property
under the modified accelerated cost recovery system was 2.7%. The 1996
property taxes on the Property were assessed at an effective annual rate of
approximately 1.118%. Such taxes on the Property for the 12 month period
ending June 30, 1997 totaled approximately $151,500. The Company does not
believe that any capital improvements made during the 12 month period
immediately following the Offering should result in an increase in annual
property taxes.

3535 General Atomics Court is a two-story facility with approximately 76,000
rentable square feet of office and laboratory space. The Property was built in
1991 and is located in the Torrey Pines area of San Diego, California. The
exterior consists of reflective glass and concrete and is situated over a
single level of subterranean parking. The building has a direct fiber-optic
linkup with the supercomputer center located at the University of California
at San Diego. The Property has been 100% leased since 1992 and is currently
leased to three tenants: The R.W. Johnson Pharmaceutical Research Institute (a
wholly owned research subsidiary of Johnson & Johnson), The Scripps Research
Institute and Syntro Corporation (a wholly owned subsidiary of Mallinckrodt,
Inc., focusing on the research and development of animal vaccines), each of
which leases over 10% of the rentable space. Following the Offering, this
Property, together with 3565 General Atomics Court, will secure approximately
$18.3 million of outstanding mortgage indebtedness. The Company owns fee
simple title to the Property. The Company acquired the Property in December
1994.

The Company's tax basis in the Property for federal income tax purposes as
of March 31, 1997 was approximately $19.5 million. The Property is depreciated
using the modified accelerated cost recovery system straight-line method,
based on an estimated useful life ranging from 20 to 40 years, depending upon
the date of certain capitalized improvements. For the three months ended March
31, 1997, the estimated annualized average depreciation rate for the Property
under the modified accelerated cost recovery system was 2.8%. The 1996
property taxes on the Property were assessed at an effective annual rate of
approximately 1.118%. Such taxes on the Property for the 12 month period
ending June 30, 1997 totaled approximately $224,900. The Company does not
believe that any capital improvements made during the 12 month period
immediately following the Offering should result in an increase in annual
property taxes.

3565 General Atomics Court contains approximately 44,000 rentable square
feet of office and laboratory space and is located in the Torrey Pines area of
San Diego, California. The two-story reflective glass and concrete building is
situated over a single level of subterranean parking. The building has a
direct fiber-optic linkup with the supercomputer center located at the
University of California at San Diego. This single tenant Property built in
1991 is the principal research facility of Agouron Pharmaceuticals, Inc.,
which was 100% leased as of December 31, 1996, 1995, 1994, 1993 and 1992. The
Company acquired the Property in December 31, 1994.

67
<PAGE>

Following the Offering, this Property, together with 3535 General Atomics
Court, will secure approximately $18.3 million of outstanding mortgage
indebtedness. The Company owns fee simple title to the Property.

The Company's tax basis in the Property for federal income tax purposes as
of March 31, 1997 was approximately $10.2 million. The Property is depreciated
using the modified accelerated cost recovery system straight-line method,
based on an estimated useful life ranging from 20 to 40 years, depending upon
the date of certain capitalized improvements. For the three months ended March
31, 1997, the estimated annualized average depreciation rate for the Property
under the modified accelerated cost recovery system was 2.8%. The 1996
property taxes on the Property were assessed at an effective annual rate of
approximately 1.118%. Such taxes on the Property for the 12 month period
ending June 30, 1997 totaled approximately $119,800. The Company does not
believe that any capital improvements made during the 12 month period
immediately following the Offering should result in an increase in annual
property taxes.

San Francisco Bay Area

1311 Harbor Bay Parkway, located in Alameda, California, was developed in
1984 and contains approximately 30,000 rentable square feet of office and
laboratory space. The building's exterior is finished with clay tile veneer
over concrete tilt-up shear walls, with gray solar glass windows. The Company
has a lease with Chiron Corporation covering approximately 6,800 square feet,
and a lease with E. Heller & Company covering approximately 2,200 square feet.
The Company is negotiating with E. Heller & Company to lease approximately
6,000 square feet of additional space and is negotiating with other potential
tenants with respect to the remaining available office space. The Company owns
a commercial condominium interest in the Property, together with an undivided
interest in the common areas of the project in which the Property is a part.
The Company acquired the Property in December 1996.

1401 Harbor Bay Parkway, located in Alameda, California, was developed in
1986, renovated in 1994 and acquired by the Company in December 1996. The
Property consists of approximately 48,000 rentable square feet of office and
laboratory space. The Property is constructed of concrete tilt-up shear walls
with structural steel framework and is fully leased to Chiron Diagnostics, a
wholly owned subsidiary of Chiron Corporation. The Company owns a commercial
condominium interest in the Property, together with an undivided interest in
the common areas of the project in which the Property is a part.

1431 Harbor Bay Parkway, located in Alameda, California, was developed in
1985 with significant renovations completed in 1989 and 1994. The building
consists of approximately 70,000 rentable square feet of office and laboratory
space. The Property is constructed of concrete tilt-up shear walls with
structural steel framework and is fully leased to the FDA under a lease with
the General Services Administration. The Company acquired the Property in
December 1996. Following the Offering, this Property will secure a mortgage of
approximately $8.5 million. The Company owns a commercial condominium interest
in the Property, together with an undivided interest in the common areas of
the project in which the Property is a part.

SEATTLE, WASHINGTON

1102 and 1124 Columbia Street, located in Seattle, Washington, consists of
two inter-connecting buildings with an aggregate of approximately 213,000
rentable square feet. Built in 1975, the seven story Columbia Building (1124
Columbia Street) is a main research facility of the Fred Hutchinson Cancer
Research Center, a leading non-profit cancer research institute. The Property
also includes a three-level subterranean annex that serves as a research
facility and the six-story Eklind Hall Building (1102 Columbia Street) that
contains additional office and laboratory space. The Company has converted
approximately 21,000 square feet of space in the Columbia Building, and in
1998 will convert an additional approximately 28,000 square feet of space in
such building into higher rent generic laboratory space. In addition to the
Fred Hutchinson Cancer Research Center, which leases nearly 75% of the
rentable space, approximately 18% of the Property is leased to Corixa
Corporation, a privately held company focusing on the development of cancer
vaccines, and the remainder is leased to Swedish Medical Center. Following the
Offering, the Property will secure approximately $28.4 million

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of outstanding mortgage indebtedness. The Company owns fee simple title to the
Property. The Company acquired the Property in May 1996, and it has been 100%
leased since that time. This Property was owner occupied prior to acquisition
by the Company, and, consequently, no comparable operating data is available
for the pre-acquisition period.

The Company's tax basis in the Property for federal income tax purposes as
of March 31, 1997 was approximately $29.4 million. The Property is depreciated
using the modified accelerated cost recovery system straight-line method,
based on an estimated useful life ranging from 20 to 40 years, depending upon
the date of certain capitalized improvements. For the three months ended March
31, 1997, the estimated annualized average depreciation rate for the Property
under the modified accelerated cost recovery system was 2.5%. The 1997
property taxes on the Property were assessed at an effective annual rate of
approximately 1.318%. Such taxes on the Property for the 12 month period
ending December 31, 1997 totaled approximately $21,578. Because a substantial
portion of the Property is leased to non-profit tenants, only approximately
18.0% of the Property is subject to property tax. The Company does not believe
that any capital improvements made during the 12 month period immediately
following the Offering should result in an increase in annual property taxes.
A decrease in the amount of space leased to non-profit tenants may result in
an increase in annual property taxes, although the Company expects to recover
any such increase from tenants.

SUBURBAN WASHINGTON, D.C.

300 Professional Drive contains approximately 48,000 rentable square feet of
office and laboratory space in a master-planned business park in Gaithersburg,
Maryland. This two-story brick veneer building with solar-reflective glass
windows was built in 1989. The building's design allows for ground-level
access to both floors and contains a split-level lobby. The Property is fully
leased to Mobile Telesystems, Inc., a privately held portable satellite
communications company, and Antex Biologics Inc., a publicly traded company
focusing on research of vaccines for infectious diseases. The Company owns fee
simple title to the Property. The Company acquired the Property in September
1996.

401 Professional Drive is a two-story building containing approximately
63,000 rentable square feet of office and laboratory space in Gaithersburg,
Maryland. The Property is fully leased to The Gillette Capital Corporation, a
wholly owned subsidiary of The Gillette Company, and houses Gillette's
principal personal care products testing facility. The Company owns fee simple
title to the Property. The Company acquired the Property in September 1996.

25, 35 and 45 West Watkins Mill Road is a three-building, single-story
office and laboratory complex located in a master-planned business park known
as the Bennington Corporate Center in Gaithersburg, Maryland. Consisting of
approximately 139,000 rentable square feet, the brick veneer buildings with
black reflective glass windows are constructed of structural steel framework
with concrete slab flooring. The Property was completed in January 1989 and
acquired by the Company in October 1996. Since that time, the Property has
been approximately 93% leased. Prior to acquisition by the Company, the
Property was 100% leased as of December 31, 1995 and 1994, 84% leased as of
December 31, 1993 and 59% leased as of December 31, 1992. The vacancy in 1993
and 1992 consisted principally of office, rather than laboratory space. The
Property currently is leased to five tenants, four of whom each lease over 10%
of the rentable space. Genetic Therapy, Inc., a wholly owned subsidiary of
Novartis AG, a multi-national Swiss pharmaceutical company, and MedImmune,
Inc., a publicly traded company focusing on vaccines for infectious diseases,
together with Capitol Cable & Technology, Inc., an electronics distribution
company, and Photo Science, Inc., a commercial photography company, lease over
90% of the Property. Capitol Cable & Technology, Inc.'s Annualized Base Rent
is $143,436, and its lease, which expires December 31, 2001, has no renewal
options. The Company owns fee simple title to the Property.

The Company's tax basis in the Property for federal income tax purposes as
of March 31, 1997 was approximately $17.3 million. The Property is depreciated
using the modified accelerated cost recovery system straight-line method,
based on an estimated useful life ranging from 20 to 40 years, depending upon
the date of certain capitalized improvements. For the three months ended March
31, 1997, the estimated annualized average depreciation rate for the
properties under the modified accelerated cost recovery system was 2.5%. The
1996 property taxes on the Property were assessed at an effective annual rate
of approximately 1.444%. Such taxes on

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the Property for the 12 month period ending June 30, 1997 totaled
approximately $275,000. The Company does not believe that any capital
improvements made during the 12 month period immediately following the
Offering should result in an increase in annual property taxes.

1413 Research Boulevard consists of 105,000 rentable square feet of office
and laboratory office. This two-building complex was built in two phases in
1967 and 1973, and is located in Rockville, Maryland. The Company acquired
this Property in July 1996. The Property is fully leased to the U.S. Army
Corps of Engineers for the Walter Reed Army Institute of Research and the
Armed Forces Institute of Pathology. The Company owns fee simple title to the
Property. A $2.6 million renovation project recently was completed in 1996
with funds provided by the U.S. Army Corps of Engineers to renovate 45,000
square feet of the complex and convert office space to generic laboratory
space.

ACQUISITION LLC PROPERTIES

1550 East Gude Drive, consisting of 44,500 rentable square feet, is located
in Rockville Maryland. The two-story brick and masonry building was built in
1981 and underwent a complete interior renovation in 1995. The first floor
contains primarily laboratory space designed within an open space
configuration, and the entire second floor is devoted to office space. The
Property is fully leased to Quest Diagnostics, Inc., a subsidiary of Corning,
Inc., which has subleased the Property to Shire Laboratory, Inc., a wholly
owned subsidiary of Shire Pharmaceuticals Group p.l.c. focusing on the
development of advanced drug delivery systems. The Acquisition LLC acquired
this property in January 1997. Upon consummation of the Offering and the
Formation Transactions, the Company will own fee simple title to the Property.

1330 Piccard Drive, located in Rockville, Maryland, consists of
approximately 131,000 rentable square feet of office and laboratory space. The
Property was built in two phases in 1978 and 1984, was renovated in 1995 and
was acquired by the Acquisition LLC in January 1997. PerImmune, Inc., a
privately held company focusing on diagnostic and therapeutic applications for
cancer and other diseases, leases the Property. Upon consummation of the
Offering and the Formation Transactions, the Company will own fee simple title
to the Property.

14225 Newbrook Drive, located in Chantilly, Virginia, was developed by
American Medical Laboratories, Inc. ("AML"), a regional clinical laboratory,
in 1992. The Acquisition LLC acquired the Property from AML, which occupied
100% of the Property, through a sale-leaseback transaction in January 1997
pursuant to which AML will continue to occupy 100% of the Property under a 20-
year lease. Because this Property was owner occupied prior to acquisition by
the Acquisition LLC, no comparable operating data is available for the pre-
acquisition period. AML has a right of first offer to purchase the Property
from the Company in the event the Company determines to sell the Property. The
approximately 248,000 rentable square foot complex consists of two buildings
connected by a 10,000 square foot, two-story open atrium lobby. Building 1,
consisting of approximately 162,000 rentable square feet of office and
laboratory space, also contains a fully licensed day care center and a 24,288
square foot central plant housing the Property's utility distribution system.
Building 2 currently consists of approximately 50,000 rentable square feet of
office space and is designed to accommodate three additional floors or up to
approximately 50,000 square feet of additional office and laboratory space.
Upon consummation of the Offering and the Formation Transactions, the Company
will own fee simple title to the Property.

The Company's tax basis in the Property for federal income tax purposes
after acquisition will be approximately $32.3 million. The Property is
depreciated using the modified accelerated cost recovery system straight-line
method, based on an estimated useful life ranging from 20 to 40 years,
depending upon the date of certain capitalized improvements. For the three
months ended March 31, 1997, the estimated average depreciation rate for the
Property under the modified accelerated cost recovery system was 2.5%. The
1996 realty taxes on the Property were assessed at an effective annual rate of
approximately 1.2%. Such taxes on the Property for the 12 month period ending
June 30, 1997 totaled approximately $155,600. The Company does not believe
that any capital improvements made during the 12 month period immediately
following the Offering should result in an increase in annual property taxes.

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COMPETITION

Management believes that the Company will be the first publicly traded
entity focusing primarily on the acquisition, management, expansion and
selective development of Life Science Facilities. However, various entities,
including insurance companies, pension and investment funds, partnerships,
developers, investment companies and other REITs invest in Life Science
Facilities and therefore compete for investment opportunities with the
Company. Many of these entities have substantially greater financial resources
than the Company and may be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
tenant or the geographic proximity of its investments. Although management
believes that it has been able to maximize returns on acquisitions as a result
of its expertise in understanding the real estate needs of Life Science
Industry tenants, its ability to identify and acquire those properties with
generic laboratory infrastructure that appeal to a wide range of Life Science
Industry tenants, and its expertise in identifying and evaluating Life Science
Industry tenants, in the future, competition from these entities may reduce
the number of suitable investment opportunities offered to the Company or
increase the bargaining power of property owners seeking to sell. See "Target
Markets" for a more detailed description of market conditions affecting
competition for tenants, including occupancy and rental rates, in each of the
Company's primary markets.

INSURANCE

The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to the Properties, with policy
specifications, insured limits and deductibles that the Company believes are
consistent with those customarily carried for similar properties. The Company
has also obtained environmental remediation insurance for the Properties. The
insurance, subject to certain exclusions and deductibles, covers the cost to
remediate environmental damage caused by unintentional future spills or the
historic presence of previously undiscovered hazardous substances. The Company
intends to carry similar insurance with respect to future acquisitions as
appropriate. In addition, the Company requires its tenants to maintain
comprehensive insurance, including liability and casualty insurance, that is
customarily obtained for similar properties. There are, however, certain types
of losses that are not generally insured because they are either uninsurable
or not economically insurable. In addition, certain disaster-type insurance
(covering catastrophic events, such as earthquakes) may not be available or
may only be available at rates that, in the opinion of management of the
Company, are prohibitive. Many of the Properties are located in the vicinity
of potentially active earthquake faults. The Company has obtained earthquake
insurance for all of the Properties. Should an uninsured disaster or a loss in
excess of insured limits occur, including a loss resulting from earthquake or
other seismic activity, the Company could lose its capital invested in the
affected properties, as well as the anticipated future revenues from such
properties, and would continue to be obligated on any mortgage indebtedness or
other obligations related to the properties. Any such loss could adversely
affect the Company and its ability to make distributions to stockholders. See
"Risk Factors--Uninsured Loss." Management believes that the Properties are
currently adequately insured.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws and regulations, a
current or previous owner or operator of real estate, as well as certain other
parties, may be required to investigate and remediate the effects of hazardous
or toxic substances or petroleum product releases on, under, in or from such
property, and may be held liable to a governmental entity or to third parties
for investigation and cleanup costs and certain damages resulting from such
releases. Such laws and regulations typically impose responsibility and
liability without regard to whether such person knew of or caused the
releases, and the liability under such laws and regulations has been
interpreted to be joint and several, unless the harm is divisible and there is
a reasonable basis for allocation of responsibility. The cost of investigating
and remediating such contamination may be substantial, and the presence of
such contamination, or the failure to properly remediate it, may adversely
affect the owner's ability to sell or rent such property or to borrow using
such property as collateral. In addition, the owner of a site may be subject
to governmental fines and common law claims by third parties seeking to
recover damages and costs resulting from such contamination.

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Certain other federal, state and local laws and regulations govern the
management and disposal of ACMs. Such laws and regulations may impose
liability for the release of ACMs and may provide for third parties to seek
recovery from owners or operators of such property for personal injury
associated with ACMs. In connection with the ownership and operation of its
properties, the Company may be potentially liable for such costs. ACMs have
been detected at certain of the Properties, but are not expected to result in
material environmental costs or liabilities to the Company.

Federal, state and local laws and regulations also require the removal or
upgrading of certain underground storage tanks and regulate the discharge of
storm water, wastewater and any water pollutants, the emission of air
pollutants, the generation, management and disposal of hazardous or toxic
chemicals, substances or wastes, and workplace health and safety. Life Science
Industry tenants, including certain of the Company's tenants, engage in
various research and development activities involving the controlled use of
hazardous materials, chemicals, biological and radioactive compounds. Although
the Company believes that the tenants' activities involving such materials
comply in all material respects with applicable laws and regulations, the risk
of contamination or injury from these materials cannot be completely
eliminated. In the event of such contamination or injury, the Company could be
held liable for any damages that result, and any such liability could exceed
the Company's resources and its environmental remediation coverage. See "Risk
Factors--Lack of Industry Diversification; Reliance on Life Science Industry
Tenants."

All of the Properties have been, and it is contemplated that all future
acquisitions will be, subjected to a Phase I or similar environmental
assessment (which generally includes a site inspection, interviews and a
records review, but no subsurface sampling). These assessments and certain
follow-up investigations (including, as appropriate, asbestos, radon and lead
surveys, additional public records review, subsurface sampling and other
testing) of the Properties have not revealed any environmental liability that
the Company believes would have a material adverse effect on the Company's
business or results of operations. Nevertheless, it is possible that the
assessments on the Properties have not revealed, or that the assessments on
future acquisitions will not reveal, all environmental liabilities and that
there may be material environmental liabilities of which the Company is
unaware.

The Company believes that the Properties are in compliance in all material
respects with applicable environmental laws. No assurances can be given,
however, that (i) the Company will not incur material liability under current
or future environmental laws and regulations or (ii) the current environmental
condition of the Properties will not be adversely affected by tenant
operations or by environmental conditions in the vicinity of such Properties.
See "Risk Factors--Possible Environmental Liabilities."

LEGAL PROCEEDINGS

To the Company's knowledge, no litigation is pending against the Company,
other than routine actions and administrative proceedings, substantially all
of which are expected to be covered by liability insurance or which, in the
aggregate, are not expected to have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.

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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Board of
Directors and generally may be amended or revised from time to time by the
Board of Directors without a vote of the stockholders, except that (i) the
Company may not enter into certain extraordinary transactions without the
approval of a majority of the stockholders (see "Risk Factors--Influence of
Certain Stockholders" and "Description of Capital Stock--Common Stock") and
(ii) changes in certain policies with respect to conflicts of interest must be
consistent with legal requirements.

INVESTMENT POLICIES

Investment in Real Estate or Interests in Real Estate. The Company's
investment objectives are to provide quarterly cash distributions and to
achieve long-term capital appreciation through increases in cash flows and the
value of the Properties and future acquisitions. See "The Company" and "The
Properties" for a discussion of the Properties and the Company's acquisition
and other strategic objectives.

The Company intends to pursue its investment objectives primarily through
the ownership of the Properties and other Life Science Facilities. The Company
also may expand and improve the Properties and future acquisitions or sell
such properties, in whole or in part, when circumstances warrant. Under
circumstances in which the investment returns to the Company justify the
expense, the Company also may undertake selective development of Life Science
Facilities. Although the Company intends to focus its activities on Life
Science Facilities in its target markets, future activity is not limited to
any geographic area or product type or to a specified percentage of the
Company's assets. There is no limit on the amount or percentage of the
Company's assets that may be invested in any one property or any one
geographic area. The Company intends to engage in such activities in a manner
consistent with the maintenance of its status as a REIT for federal income tax
purposes.

The Company also may participate with third parties in property ownership
through joint ventures or other types of co-ownership. Such investments may
permit the Company to own interests in larger assets without unduly
restricting diversification and, therefore, add flexibility in structuring its
portfolio. Equity investments may be subject to existing mortgage financing
and other indebtedness or such financing or indebtedness as may be incurred in
connection with acquiring or refinancing these investments. Debt service with
respect to such financing or indebtedness will have priority over any
distributions with respect to capital stock. The Company intends to make
investments in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act").

Investments in Real Estate Mortgages. Although the Company's current
portfolio consists of, and the Company's business objectives emphasize, equity
investments in Life Science Facilities, the Company may, in the discretion of
the Board of Directors, invest in mortgages and other types of equity real
estate interests consistent with the Company's qualification as a REIT.
Investments in real estate mortgages run the risk that one or more borrowers
may default under such mortgages and that the collateral securing such
mortgages may not be sufficient to enable the Company to recoup its full
investment. The Company may also retain a purchase money mortgage for a
portion of the sale price in connection with the disposition of a property
from time to time.

Investments in Securities or Interests in Persons Primarily Engaged in Real
Estate Activities and Other Issuers. Although the Company has no present
intention to do so, it also may invest in securities of other REITs, other
entities engaged in real estate activities, or securities of other issuers
(including for the purpose of exercising control over such entities), subject
to the percentage of ownership limitations, limitations on ownership of
certain types of assets, and the gross income tests necessary for REIT
qualification. See "Federal Income Tax Considerations--Taxation of the
Company."

DISPOSITION POLICY

Management will periodically review the assets comprising the Company's
portfolio. The Company has no current intention to dispose of any of the
Properties, although it reserves the right to do so. Disposition decisions

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relating to the Company's assets will be made based upon several factors,
including but not limited to: (i) the potential for continuing increases in
cash flow and value, (ii) the sale price, (iii) the strategic fit of the
properties with the Company's portfolio, (iv) the potential for, or the
existence of, any environmental or regulatory issues, (v) alternative uses of
capital, (vi) maintaining qualification as a REIT and (vii) other tax-related
considerations. See "Federal Income Tax Considerations--Taxation of the
Company."

FINANCING POLICIES

The Company intends to make additional investments in Life Science
Facilities and may incur indebtedness to make such investments or to meet the
distribution requirements imposed by the REIT provisions of the Code to the
extent that cash flows from the Company's investments and working capital is
insufficient. The Company has adopted a policy to limit its total consolidated
indebtedness so that at the time any debt is incurred, the Company's debt to
total market capitalization ratio does not exceed 50%. Upon consummation of
the Offering and the Formation Transactions, the Company's debt to total
market capitalization ratio will be approximately 21%. The Company's Charter
and Bylaws, however, do not limit the amount or percentage of indebtedness
that the Company may incur. The Company may, from time to time, modify its
debt policy in light of current economic conditions, relative costs of debt
and equity capital, market values of its properties, general conditions in the
market for debt and equity securities, fluctuations in the market price of the
Common Stock, growth and acquisition opportunities, the Company's continued
REIT qualification requirements and other factors. Accordingly, the Company
may increase or decrease its debt to total market capitalization ratio beyond
the limits described above. If these policies were changed, the Company could
become more highly leveraged, resulting in an increased risk of default on its
obligations and a related increase in debt service requirements that could
adversely affect the Company's financial condition and its ability to make
distributions to stockholders. See "Risk Factors--Changes in Policies Without
Stockholder Approval" and "--No Limitation on Debt."

The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time debt is incurred, rather
than relative to the book value of its assets. The Company believes that the
book value of its assets (which to a large extent is the depreciated value of
real property, the Company's primary tangible asset) does not accurately
reflect its ability to borrow and to meet debt service requirements and that a
debt to total market capitalization ratio, therefore, provides a more
appropriate indication of leverage. A debt to total market capitalization
ratio, however, is based, in part, upon the aggregate market value of the
outstanding shares of Common Stock and will fluctuate with changes in the
price of the Common Stock (and the issuance of additional shares of Common
Stock). Accordingly, because the measurement of the Company's total
consolidated indebtedness to total market capitalization is made at the time
debt is incurred, the debt to total market capitalization ratio could later
exceed the 50% level.

To the extent that the Board of Directors desires to obtain additional
capital, the Company may raise such capital through additional public and
private equity offerings, debt financings, retention of cash flow (subject to
satisfying the Company's distribution requirements under the REIT provisions
of the Code) or a combination of these methods. The Company's debt may consist
of a combination of property level debt and corporate level debt, and
financing may consist of floating and/or fixed rate debt. Borrowings may be
unsecured or secured by any or all of the assets of the Company and may have
full or limited recourse to all or any portion of the assets of the Company.
Indebtedness may be in the form of bank borrowings, purchase money obligations
to sellers of properties, publicly or privately placed debt instruments or
financing from institutional investors or other lenders. The proceeds from any
borrowings by the Company may be used (subject to limitations which may be
contained in the instruments governing such indebtedness) to pay
distributions, to provide working capital, to pay existing indebtedness or to
finance acquisitions, expansions or selective development of new properties.
The Company has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio.

CONFLICT OF INTEREST POLICIES

The Company has entered into agreements with Messrs. Sudarsky, Marcus, Gold,
Stone, Kreitzer and Nelson designed to eliminate or minimize potential
conflicts of interest. The respective agreements prohibit each

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of them from engaging in any activity competitive with the business of the
Company during the term of each such officer's employment agreement with the
Company and for any period during which such officer is entitled to severance
benefits thereunder. See "Management--Employment Agreements." In addition, the
Board of Directors is subject to certain provisions of Maryland law that are
designed to eliminate or minimize certain potential conflicts of interest.
There can be no assurance, however, that these policies will be successful in
eliminating the effects of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
stockholders.

Pursuant to Maryland law, each director will be subject to restrictions on
misappropriation of corporate opportunities. In addition, a contract or other
transaction between the Company and a director or between the Company and any
other corporation or other entity in which a director of the Company is a
director or has a material financial interest is not void or voidable solely
on the grounds of such interest if (i) the fact of the common directorship is
disclosed or known to the Board of Directors (or committee thereof) or the
stockholders, as applicable, and the contract or transaction is authorized,
approved or ratified by the affirmative vote of a majority of the
disinterested directors or the stockholders, or (ii) the transaction is
established to have been fair and reasonable to the Company. The Company's
Charter provides, however, that directors of the Company who are affiliates of
AEW have no obligation to present to the Company opportunities that may be
pursued by AEW, unless such opportunities were presented to the director in
his capacity as such.

POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company has authority to offer Common Stock, Preferred Stock or options
to purchase capital stock in exchange for property and to repurchase or
otherwise acquire its Common Stock or other securities in the open market or
otherwise and may engage in such activities in the future. The Board of
Directors, however, has no present intention of causing the Company to
repurchase any capital stock. The Company may issue Preferred Stock from time
to time, in one or more series, as authorized by the Board of Directors
without stockholder approval. See "Description of Capital Stock--Preferred
Stock." The Company has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers nor has the Company
invested in the securities of other issuers for the purposes of exercising
control (other than with respect to QRS), and does not intend to do so (other
than with respect to (i) the Acquisition LLC, Harbor Bay, LLC or other
subsidiaries or (ii) the acquisition of properties). The Company has not made
any loans to third parties, although the Company may in the future make loans
to third parties, including, without limitation, to joint ventures in which it
participates. The Company intends to make investments in such a manner as to
maintain its qualification as a REIT, unless because of circumstances or
changes in the Code (or the Treasury Regulations), the Board of Directors
determines that it is no longer in the best interest of the Company to qualify
as a REIT.

The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In addition to applicable legal or NYSE requirements, if any,
holders of shares of Common Stock will receive annual reports containing
audited financial statements with a report thereon by the Company's
independent certified public accountants.

FORMATION AND STRUCTURE

FORMATION AND RELATED TRANSACTIONS

Formation. Holdings filed its Articles of Incorporation in the State of
Maryland on September 30, 1993 and was capitalized in January 1994 by its
founders, Jerry Sudarsky, Joel Marcus, Alan Gold, Gary Kreitzer and Steven
Stone. In connection with such capitalization, Holdings issued securities to
Mr. Sudarsky in exchange for cash and to Mr. Marcus in exchange for a
promissory note that was subsequently forgiven by Holdings in consideration
for services rendered to Holdings. In addition, Holdings issued securities to
Messrs. Gold, Kreitzer and Stone in exchange for the assets of Bernardo
Capital, Inc., a real estate company, valued by the Board of Directors of
Holdings at $55,640. No independent appraisal of the assets was performed at
the time of contribution. Bernardo Capital, Inc. acquired the contributed
assets over the duration of its operations from

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September 1992 through January 1994 at a nominal cost. Messrs. Sudarsky,
Marcus and Gold, are officers and directors of both Holdings and Alexandria
and are officers of QRS. Messrs. Sudarsky and Marcus are also directors of
QRS.

On October 27, 1994, Alexandria filed its Articles of Incorporation in the
State of Maryland. In connection with the formation of Alexandria, and as
required by the Company's working capital lender, Holdings contributed
substantially all of its assets and liabilities (other than certain
outstanding unsecured notes) to Alexandria in exchange for all of the issued
and outstanding shares of Common Stock. On September 6, 1996, as required in
connection with the PaineWebber Facility, QRS filed its Articles of
Incorporation in the State of Maryland. In connection with the formation of
QRS, Alexandria contributed 1413 Research Boulevard in Rockville, Maryland to
QRS in exchange for all of the issued and outstanding shares of common stock
of QRS.

In connection with the refinancing of existing mortgage debt on 1431 Harbor
Bay Parkway, the Company has formed Harbor Bay, LLC, a special-purpose limited
liability company, of which Alexandria holds a 99% non-managing interest and
QRS holds a 1% managing interest. In connection with such refinancing, QRS
will contribute 1431 Harbor Bay Parkway to Harbor Bay, LLC.

Stock Split. In connection with the Offering, each outstanding share of
Common Stock was split into 1,765.923 shares of Common Stock (the "Stock
Split"). As a result, Holdings directly owns 1,765,923 shares of Common Stock,
representing approximately 17.0% of the shares of Common Stock to be
outstanding upon consummation of the Offering and the Formation Transactions.

Redemption of Outstanding Shares of Series T Preferred Stock. In December
1994, Alexandria issued four shares of Series T Preferred Stock to each of
Messrs. Sudarsky, Marcus and Gold, each of whom are officers and directors of
the Company, in connection with certain REIT requirements of the Code.
Pursuant to the terms thereof, upon consummation of the Offering, each
outstanding share of Series T Preferred Stock will be redeemed for cash in an
amount equal to its stated value of $100.

Conversion of Series U Preferred Stock. In January 1996, Alexandria issued
220 shares of Series U Preferred Stock to 126 holders, including certain
officers and directors of the Company, in connection with certain REIT
requirements of the Code. In connection with the Offering, the outstanding
shares of Series U Preferred Stock have been converted into an aggregate of
7,354 shares of Common Stock, representing 0.1% of the shares of Common Stock
to be outstanding upon consummation of the Offering and the Formation
Transactions.

Conversion of Series V Preferred Stock. In 1996, Alexandria issued 27,500
shares of Series V Preferred Stock to AEW in a series of transactions to raise
additional equity capital. Pursuant to the terms of the Series V Preferred
Stock, the Company notified AEW that it intended to (i) convert one-half of
the outstanding shares of Series V Preferred Stock into shares of Common Stock
and (ii) redeem the remaining shares of Series V Preferred Stock for cash.
Notwithstanding the option of the Company to effectuate the foregoing
conversion and redemption, AEW has exercised its right to convert all of its
shares of Series V Preferred Stock into shares of Common Stock. In connection
with negotiations with AEW to facilitate the consummation of the Offering,
including AEW's election to convert all of its shares of Series V Preferred
Stock, the Company agreed to increase the number of shares of Common Stock
that AEW will receive upon conversion by approximately 2.5%. As a result, upon
conversion, AEW will own 1,659,239 shares of Common Stock, representing
approximately 16.0% of the shares of Common Stock to be outstanding upon
consummation of the Offering and the Formation Transactions. As a result of
AEW's decision to convert the Series V Preferred Stock to Common Stock, the
accreted amount outstanding of the Series V Preferred Stock of $25,929,000 was
reclassified to par value of Common Stock ($16,000) and additional paid in
capital ($25,913,000) in the unaudited pro forma condensed consolidated
balance sheet as of March 31, 1997. In addition, AEW will receive its regular
quarterly dividend, pro rated from April 1, 1997 to the date of conversion
(approximately $435,000 in the aggregate).

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<PAGE>

Purchase of the Acquisition LLC. In connection with seeking financing for
the acquisition of the Acquisition LLC Properties, the Company negotiated with
several third party lenders, including PaineWebber. Based on the financing
proposals presented by the various lenders, the Company determined that the
financing arrangement presented by PaineWebber was the most favorable
available to the Company. Pursuant to the terms of the Agreement for Sale and
Purchase of Membership Interests (the "LLC Agreement") entered into between
certain affiliates of PaineWebber and the Company on January 13, 1997, the
Company assigned its rights to purchase the Acquisition LLC Properties to the
Acquisition LLC, which is controlled by PaineWebber Real Estate Holdings Inc.
and PW Realty Partners, LLC (the "PW Affiliates"). Thereafter, the Acquisition
LLC acquired the Acquisition LLC Properties. The LLC Agreement requires that
the Company acquire the membership interests in the Acquisition LLC upon the
earlier to occur of September 30, 1998, the Offering, or certain events of
default specified therein. None of the Continuing Investors has any direct or
indirect interest in the Acquisition LLC or the Properties owned thereby.

Concurrently with the Offering, the Company will acquire 100% of the
membership interests in the Acquisition LLC from the PW Affiliates. As a
result of the acquisition of the membership interests in the Acquisition LLC,
the Company will acquire the Acquisition LLC Properties located at 1550 East
Gude Drive, Rockville, Maryland, 1330 Piccard Drive, Rockville, Maryland and
14225 Newbrook Drive, Chantilly, Virginia. Pursuant to the LLC Agreement, (i)
the Company agreed to pay the PW Affiliates an acquisition fee and (ii) the
purchase price for the Acquisition LLC equals the original purchase price of
the Acquisition LLC Properties (as adjusted for the acquisition fee and cash
flow from the Acquisition LLC Properties) plus a percentage of the excess of
(x) the aggregate fair market value (as defined) of the Acquisition LLC
Properties on the date of purchase of the Acquisition LLC by the Company over
(y) the adjusted purchase price. To facilitate consummation of the Offering,
at the request of the Company, the PW Affiliates have agreed to amend the LLC
Agreement to reduce the purchase price by approximately $766,000. The Company
currently anticipates that the purchase price for the membership interests in
the Acquisition LLC (calculated using the above formula and after giving
effect to the $766,000 reduction) will be approximately $58.9 million. The
Company will treat the difference (approximately $7.2 million) between the
purchase price for the membership interests in the Acquisition LLC and the
original purchase price of the Acquisition LLC Properties paid by the
Acquisition LLC (approximately $51.7 million) as a financing cost that will be
recognized when the transaction is completed.

The LLC Agreement provides that the Acquisition LLC will not engage in any
business other than the acquisition and operation of the Acquisition LLC
Properties and that if PaineWebber had not been selected to act as lead
managing underwriter for the Offering on the terms set forth in the
PaineWebber Facility, the purchase price required to be paid by the Company
for the membership interests in the Acquisition LLC would have been increased
in an amount equal to 2% of the capital contributions previously made by the
PW Affiliates to the Acquisition LLC. See "Underwriting."

NEW MORTGAGE DEBT

The Company will repay approximately $78.1 million of its existing mortgage
debt with the net proceeds of the Offering, as well as the net proceeds from:
(i) a new $8.5 million mortgage loan on 1431 Harbor Bay Parkway, and (ii) a
new $6.9 million mortgage loan on 1102 and 1124 Columbia Street, each expected
to be incurred upon consummation of, or shortly following, the Offering. The
$8.5 million mortgage loan will bear interest at a fixed rate equal to
approximately 70 basis points over the interpolated 7-year Treasury rate,
which would result in an interest rate of approximately 7.30% (as of May 1,
1997), and will mature in January 2014. The $6.9 million mortgage loan will
initially bear interest at a variable rate based on 90 basis points over
LIBOR. This rate is anticipated to be fixed (based on the terms of the loan)
in August 1997 at a rate equal to approximately 90 basis points over the
interpolated 20-year Treasury rate, which would result in a fixed interest
rate of approximately 7.70% (as of May 1, 1997). This loan will mature in July
2016.

77
<PAGE>

BENEFITS TO RELATED PARTIES

Accretion in Value. As a result of the Offering and the Formation
Transactions, Holdings and the officers and directors of the Company directly
will realize an immediate accretion in the net tangible book value of their
investment in Alexandria of $8.68 and $14.51 per share of Common Stock,
respectively.

Stock Grants and Stock Options. In connection with the Offering, officers,
directors and certain employees of the Company will be granted an aggregate of
152,615 shares of Common Stock. Officers, directors and certain employees of
the Company will also receive options to purchase 57,000 shares of Common
Stock under the 1996 Plan in substitution for previously granted Holdings
Stock Options (such stock options will be exercised in connection with the
Offering at a nominal exercise price, and thereafter no further stock options
will be issued under the 1996 Plan). In addition to their respective ownership
interests in Holdings, upon consummation of the Offering and the Formation
Transactions, officers, directors and certain employees of the Company will
directly own 209,615 shares of Common Stock, representing approximately 2.0%
of the outstanding shares of Common Stock.

The following table lists the number of shares to be issued to officers and
directors of the Company and the number of shares issuable upon exercise of
stock options under the 1996 Plan.

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK ISSUABLE
UPON EXERCISE OF
SUBSTITUTE
OPTIONS UNDER
SHARES OF COMMON THE 1996 PLAN
NAME STOCK TO BE ISSUED (1)
---- ------------------ ----------------
<S> <C> <C>
Jerry M. Sudarsky........................ 5,555 4,164
Joel S. Marcus........................... 54,160 29,140
Alan D. Gold............................. 33,329 7,619
Peter J. Nelson.......................... 3,097 --
Gary A. Kreitzer......................... 13,887 3,822
Steven A. Stone.......................... 13,887 4,212
Vincent R. Ciruzzi....................... 4,166 --
Joseph Elmaleh........................... 3,703 1,190
Viren Mehta.............................. 3,703 1,190
David M. Petrone......................... 3,703 1,190
Anthony M. Solomon....................... 3,703 1,190
</TABLE>
- --------
(1) All options issued under the 1996 Plan will be exercised in connection
with the Offering and, thereafter, no further stock options will be issued
under the 1996 Plan.

In connection with the Offering, the Company will also grant officers,
directors and employees of the Company options to purchase an aggregate of
600,000 shares of Common Stock at the initial public offering price pursuant
to the Company's 1997 Stock Option Plan, as follows: Jerry M. Sudarsky,
10,000; Joel S. Marcus, 140,000; Alan D. Gold, 100,000; Peter J. Nelson,
60,000; Gary A. Kreitzer, 60,000; Steven A. Stone, 60,000; Vincent R. Ciruzzi,
45,000; Joseph Elmaleh, 5,000; David Petrone, 5,000; Viren Mehta, 5,000;
Anthony Solomon, 5,000; and all other employees, 105,000. Options granted to
officers, employee directors and other employees of the Company under the 1997
Stock Option Plan will vest ratably over a three-year period. Options granted
to non-employee directors under the 1997 Stock Option Plan will vest
immediately upon the date of grant. See "Management--Benefit Plans."

Registration Rights. In connection with the Offering, the Company will grant
to Holdings customary transferable registration rights with respect to the
shares of Common Stock held by it. See "Shares Eligible for Future Sale."

Related Party Loans and Reimbursements. During 1996, certain stockholders of
Holdings, including Jacobs Engineering Group, Inc., Southern Shipping &
Energy, Inc., Joseph Jacobs, Jerry Sudarsky, Joseph Flom and Joseph Elmaleh,
loaned in the aggregate $2.5 million to Holdings. Such loans mature on June
30, 1997, bear

78
<PAGE>

interest at the rate of 10% per annum, and are payable in monthly
installments. The proceeds from such loans were subsequently advanced to the
Company for general working capital purposes. Holdings will receive
$2.5 million from the proceeds of the Offering as repayment of the advance to
the Company and will use the proceeds thereof to repay loans from certain
stockholders of Holdings. See "Use of Proceeds."

Upon consummation of the Offering and the Formation Transactions, Bernardo
Capital, Inc. (a corporation of which Messrs. Gold, Kreitzer and Stone are
stockholders) will receive from Holdings approximately $517,000 as
reimbursement for certain expenses, including accrued salaries and benefits
paid to each of Messrs. Gold, Kreitzer and Stone, incurred in connection with
the formation of Holdings in 1993. These funds will be paid by Holdings, and
no proceeds of the Offering will be utilized for this purpose. Bernardo
Capital, Inc. has had no active operations since January 1994.

Benefits to Lead Managing Underwriter. PaineWebber will receive certain
material benefits from the Offering and the Formation Transactions, including
(i) a portion of the underwriting discounts and commissions (which in the
aggregate will be 6.5% of the gross proceeds of the Offering) to be determined
principally based on the number of Shares sold and/or underwritten by
PaineWebber, (ii) a fee for structural and advisory services equal to 1% of
the gross proceeds of the Offering (approximately $1.4 million), (iii)
approximately $58.9 million of the net proceeds as consideration for the sale
of the Acquisition LLC to the Company and (iv) $44.4 million of the net
proceeds as repayment of amounts outstanding under the PaineWebber Facility.
See "Use of Proceeds," "--Formation and Related Transactions" and
"Underwriting."

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<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT

The following table sets forth certain information with respect to the
directors and executive officers of the Company, as well as certain of its
senior management.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerry M. Sudarsky....... 79 Chairman of the Board
Joel S. Marcus.......... 49 Chief Executive Officer and Director
Alan D. Gold............ 37 President and Director
Peter J. Nelson......... 39 Chief Financial Officer, Treasurer and Secretary
Gary A. Kreitzer........ 42 Senior Vice President and In-House Counsel
Steven A. Stone......... 35 Corporate Vice President
Vincent R. Ciruzzi...... 34 Vice President
Joseph Elmaleh.......... 58 Director
Viren Mehta............. 47 Director
David M. Petrone........ 52 Director
Anthony M. Solomon...... 77 Director
</TABLE>

JERRY M. SUDARSKY has served as the Company's Chairman of the Board of
Directors since its inception. Mr. Sudarsky also served as Chief Executive
Officer of the Company from its inception until March 1997. Mr. Sudarsky
served as Vice Chairman of Jacobs Engineering Group, Inc., an engineering and
construction firm, from 1986 to 1994. Mr. Sudarsky has had extensive
experience in the design, engineering, construction and operation of
commercial properties, including Life Science Facilities. In 1967,
Mr. Sudarsky founded and became Chairman of Israel Chemicals, where he served
until 1972, and in 1946, he founded Bioferm Corp., a pioneer in the production
of Vitamin B12 and the first commercial bio-insecticide products, where he
served until 1965.

JOEL S. MARCUS has served as the Company's Chief Executive Officer since
March 1997 and has served as a director since inception. Mr. Marcus previously
served as the Company's Vice Chairman of the Board and Chief Operating Officer
from its inception until his appointment as Chief Executive Officer in March
1997 and as Secretary from inception until Mr. Nelson's appointment as
Secretary in April 1997. Mr. Marcus was a partner in the law firm of Brobeck,
Phleger & Harrison, and a predecessor firm, from 1986 to 1994, specializing in
corporate finance and acquisitions. From 1984 to 1994, he also served as
General Counsel and Secretary of Kirin-Amgen, Inc., a joint venture that
financed the development of two genetically engineered pharmaceuticals.
Mr. Marcus has served on the Board of Directors of Ariad Pharmaceuticals, a
publicly traded biotechnology company, since 1995. Mr. Marcus was formerly a
practicing Certified Public Accountant specializing in the financing and
taxation of real estate, including REITs. Mr. Marcus has a broad-based network
of working relationships in the real estate and Life Science industries. He
received his undergraduate and Juris Doctor Degrees from the University of
California at Los Angeles and is a member of NAREIT.

ALAN D. GOLD has served as President and a director of the Company since its
inception. Mr. Gold previously served as the Company's Treasurer from
inception until Mr. Nelson's appointment as Treasurer in April 1997. Mr. Gold
has served as managing partner of GoldStone Real Estate Finance and
Investments, a partnership engaged in the real estate and mortgage business,
since 1989. The partnership ceased active operations in January 1994. He also
served as Assistant Vice President of Commercial Real Estate for Northland
Financial Company, a full service commercial property mortgage banker, from
1989 to 1990 and as Real Estate Investment Officer-Commercial Real Estate for
John Burnham Company, a regional full service real estate company, from 1985
to 1989. Mr. Gold received his Bachelor of Science Degree in Business
Administration and his Master of Business Administration with an emphasis in
real estate finance from San Diego State University.

PETER J. NELSON has served as the Chief Financial Officer, Treasurer and
Secretary of the Company since April 1997. Prior to joining the Company, from
1995 to 1997, Mr. Nelson served as Chief Financial Officer of

80
<PAGE>

Lennar Partners, a diversified real estate company, where he was responsible
for the financial management of the firm's real estate portfolio. From 1990 to
1995, Mr. Nelson was Chief Financial Officer of Westrec Properties, Inc., a
national owner and operator of boat marinas and resort properties. Mr. Nelson
also served as Vice President, Corporate Financial Planning at Public Storage,
Inc. from 1986 to 1990, and as an Audit Manager at Ernst & Young LLP from 1979
to 1986. Mr. Nelson is a Certified Public Accountant and a member of the
American Institute of CPAs and the California Society of CPAs where he has
served on the Real Estate Committee. Mr. Nelson received his Bachelor of
Science Degree from California State University.

GARY A. KREITZER has served as Senior Vice President and In-House Counsel of
the Company since its inception. From 1990 to 1994, Mr. Kreitzer was In-House
Counsel and Vice President for Seawest Energy Corporation, an alternative
energy facilities development company. Mr. Kreitzer also served as In-House
Counsel, Secretary and Vice President for The Christiana Companies, Inc., a
publicly traded investment and real estate development company from 1982 to
1989. Mr. Kreitzer received his Juris Doctor Degree, with honors, from the
University of San Francisco and a Bachelor of Arts Degree in economics from
the University of California, San Diego. Mr. Kreitzer is a member of the
California State Bar, the American Bar Association and the American Corporate
Counsel Association.

STEVEN A. STONE has served as Corporate Vice President of the Company since
its inception. Since 1989, Mr. Stone has served as a partner in GoldStone Real
Estate Finance and Investments, which ceased active operations in January
1994. Mr. Stone served as Asset Manager for Baldwin Industrial Properties,
Ltd., a commercial real estate developer, from 1986 to 1989, Assistant to Vice
President-Business and Real Estate Development at Grant General Contractors
from 1986 to 1989, and Appraiser for the Bank of America from 1983 to 1984.
Mr. Stone holds a Bachelor of Science Degree in Business Administration from
San Diego State University.

VINCENT R. CIRUZZI has served as a Vice President of the Company since
September 1996. In 1993, Mr. Ciruzzi founded a real estate consulting
business, which provided consulting services to the Company from September
1995 until his appointment as Vice President. Mr. Ciruzzi served as Project
Manager for Home Capital Development Corporation, a real estate development
company, from 1986 to 1993, where he specialized in project management of
master planned communities as well as real estate development. Mr. Ciruzzi
received his Bachelor of Science Degree in Finance and Real Estate from the
University of Southern California.

JOSEPH ELMALEH has served as a director of the Company since its inception.
Dr. Elmaleh is a chemical engineer and international financier, with
businesses in the United States, Europe and the Middle East. He served as
Chairman and Chief Executive Officer of Passport Ltd., an oil and gas and real
estate company, from 1989 to 1995 and of J.O.E.L. Ltd., an oil and gas and
real estate company, from 1981 to 1995. Dr. Elmaleh also served as Chairman,
Chief Executive Officer and a director of Isramco, Inc., a publicly traded oil
and gas exploration company, from 1981 to 1996. Dr. Elmaleh has been a
director of Panatech Research and Development Inc., a manufacturer of tips for
spray guns, since 1980. Dr. Elmaleh received his Bachelor of Science Degree in
chemical engineering from the Technion-Israel Institute of Technology and his
Doctorate in Operations Research from the Imperial College of Science and
Technology, London.

VIREN MEHTA has served as a director of the Company since January 1995.
Since 1989, Mr. Mehta has been a partner of Mehta and Isaly, a pharmaceutical
and biotechnology industry advisory and investment firm. Mr. Mehta served as a
Vice President at S.G. Warburg & Co., Inc., a merchant bank, from 1987 to
1989. In 1986, he established the pharmaceutical investment research division
in Wood MacKenzie & Company Inc., New York, of which he became a Vice
President and served until 1987. Mr. Mehta also worked with the international
division of Merck & Co., a pharmaceutical manufacturer, from 1983 to 1986. Mr.
Mehta received his Doctor of Pharmacy Degree from the University of Southern
California and his Master of Business Administration from the University of
California at Los Angeles.

DAVID M. PETRONE has served as a director of the Company since its
inception. Mr. Petrone has been Chairman of the Board of Housing Capital
Corporation, a real estate finance company, since 1994. From 1986

81
<PAGE>

until 1992, Mr. Petrone was Vice Chairman of the Board of Wells Fargo and
Company. Mr. Petrone also served as Chief Executive Officer and President of
Wells Fargo Realty Advisors from 1978 to 1981 and of Wells Fargo Mortgage and
Equity Trust, a publicly held REIT, from 1981 to 1988. Mr. Petrone has served
as a director of Jacobs Engineering Group, Inc. since 1986 and of Spieker
Properties, a publicly held REIT, since 1993. He received his Bachelor of
Science and Master of Business Administration Degrees from the University of
Oregon.

ANTHONY M. SOLOMON has served as a director of the Company since October
1994. Mr. Solomon is an economist and banker and has served as Chairman of The
Blackstone Alternate Asset Management Advisory Board since 1994. Mr. Solomon
also has served as Chairman of The Europe Fund, a closed end fund investing in
Europe since 1990 and of The United Kingdom Fund, a closed end fund investing
in the United Kingdom since 1987. Mr. Solomon has served as an economic
advisor to the Banca Comerciale Italiana since 1985. Mr. Solomon was a
director of S.G. Warburg p.l.c. London from 1985 until 1991 and Chairman of
S.G. Warburg USA from 1985 until 1989. Mr. Solomon also served as President
and Chief Executive Officer of the Federal Reserve Bank of New York from 1980
to 1985 and was Under Secretary of the Treasury from 1977 to 1980. Mr. Solomon
received his Bachelor of Arts Degree in Economics from the University of
Chicago and his Masters Degree in Economics and Public Administration from
Harvard University.

ELECTION OF DIRECTORS AND DIRECTOR COMPENSATION

All directors are elected to hold office until the next annual meeting of
stockholders of the Company and until their successors are duly elected and
qualify. Pursuant to an agreement with the Company, AEW has the right to
include two nominees on the ballot for the election of directors of the
Company, and one nominee on the ballot for the election of directors of QRS,
so long as AEW owns Common Stock representing more than 15% of the voting
securities of the Company, and the right to include one nominee on the ballot
for the election of directors of the Company so long as AEW owns Common Stock
representing more than 7% of such securities. Holdings has agreed to vote its
shares of Common Stock for such nominees included on the ballot for the
election of directors of the Company, and the Company has agreed to take all
actions necessary to cause the election of the nominee at QRS. No directors
currently serve on the board of directors of the Company or QRS pursuant to
such arrangement, although AEW may, at its discretion, exercise its right to
include nominees on the ballot in the future. If, at any time, AEW's ownership
of Common Stock represents less than 15% of the voting securities of the
Company, within 10 days of such decrease in ownership, AEW has agreed to cause
one director elected or nominated by it to resign from the Board of Directors
and all committees thereof, and from the board of directors of QRS and all
committees thereof. Upon AEW's ownership of Common Stock decreasing to less
than 7% of the outstanding voting securities of the Company, within 10 days of
such decrease in ownership, AEW shall cause all directors nominated by it
pursuant to this arrangement to resign from the Board of Directors and all
committees thereof. Upon consummation of the Offering and the Formation
Transactions, AEW will own approximately 16.0% of the outstanding Common
Stock. See "Formation and Structure--Benefits to Related Parties."

Following the Offering, the Company intends to pay each of its non-employee
directors annual compensation of $12,000 for their services. In addition, each
non-employee director will receive a fee of $1,000 for each meeting of the
Board of Directors attended in person and $500 for attendance at each
telephonic meeting of the Board of Directors, and will be reimbursed for
reasonable expenses incurred to attend director and committee meetings. Non-
employee directors also will be eligible to receive options to purchase Common
Stock as compensation for their service as directors under the 1997 Stock
Option Plan. Officers of the Company who are also directors will not be paid
any fees for services as directors. Prior to the Offering, non-employee
directors received no annual compensation for their services but were entitled
to stock options under the 1996 Stock Option Plan and to reimbursement for
reasonable expenses incurred to attend director and committee meetings.
Directors of the Company will also receive certain benefits in connection with
the Offering and the Formation Transactions. See "Formation and Structure."

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<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The Board currently has two committees, the principal functions of which are
described below. The Board of Directors may, from time to time, establish
other committees, composed of one or more directors, and delegate to such
committees various powers, to the extent permitted by Maryland law.

The Audit Committee, among other things, recommends the firm to be appointed
as independent accountants to audit the Company's financial statements,
discusses the scope and results of the audit with the independent accountants,
reviews with management and the independent accountants the Company's interim
and year-end operating results, considers the adequacy of the internal
accounting controls and audit procedures of the Company and reviews the non-
audit services to be performed by the independent accountants. The members of
the Audit Committee currently are Messrs. Petrone and Elmaleh. Mr. Petrone
will resign from the Audit Committee immediately prior to consummation of the
Offering and, upon such resignation, Messrs. Mehta and Solomon will be
appointed to the Audit Committee.

The Compensation Committee has authority to, among other things, renew and
approve salary arrangements, including annual incentive awards, for directors,
officers and other employees of the Company; adopt and amend employment
agreements for officers and other employees of the Company; and administer the
Company's option and other incentive plans. Members of the Compensation
Committee currently include Messrs. Sudarsky, Elmaleh and Petrone. Mr.
Sudarsky will resign from the Compensation Committee immediately prior to
consummation of the Offering and, upon such resignation, Mr. Mehta will be
appointed to the Compensation Committee.

EXECUTIVE COMPENSATION

The following table sets forth, in summary form, the compensation paid by
the Company to its Chief Executive Officer and the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for services rendered to the Company in all capacities for the year ended
December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG TERM COMPENSATION
COMPENSATION(1) AWARDS
------------------ ----------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS(2) YEAR SALARY($) BONUS($) OPTIONS (#) COMPENSATION($)
- ------------------------------- ---- --------- -------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Jerry M. Sudarsky....... 1996 $244,339 -- -- --
Chairman of the Board
Joel S. Marcus.......... 1996 $213,797 $100,000 369(3) $6,343(4)
Chief Executive Officer
and Director
Alan D. Gold............ 1996 $179,076 $ 65,000 -- $1,510(5)
President and Director
Gary A. Kreitzer........ 1996 $127,260 $ 35,000 -- $2,300(6)
Senior Vice President
and In-House Counsel
Steven A. Stone......... 1996 $ 95,260 $ 35,000 -- $1,194(7)
Corporate Vice
President
</TABLE>
- --------
(1) While each of the five named individuals received perquisites or other
personal benefits in the years shown, in accordance with applicable
regulations, the value of these benefits is not indicated because they did
not exceed in the aggregate the lesser of $50,000 or 10% of the
individual's salary and bonus in 1996.
(2) During 1996, Mr. Sudarsky served as Chairman of the Board and Chief
Executive Officer; Mr. Marcus served as Vice Chairman of the Board, Chief
Operating Officer and Secretary; and Mr. Gold served as President,
Treasurer and Director.
(3) In 1996, Holdings granted to Mr. Marcus a non-qualified option under the
1994 Plan to purchase 369 shares of common stock of Holdings exercisable
at $2.55 per share. In connection with the Offering, Mr. Marcus will
receive an option under the 1996 Plan to purchase 1,756 shares of Common
Stock in substitution for such option, which will be fully vested and
exercisable at a nominal exercise price. Such option will be exercised in
connection with the Offering. See "Formation and Structure--Benefits to
Related Parties."
(4) Consists of $1,540 paid by the Company for term life insurance premiums,
$2,767 for individual disability insurance premiums and $2,036 for long-
term disability insurance premiums.
(5) Consists of $948 paid by the Company for individual disability insurance
premiums and $562 for long-term disability insurance premiums.
(6) Consists of $1,060 paid by the Company for term life insurance premiums
and $1,240 for long-term disability insurance premiums.
(7) Consists of $820 paid by the Company for term life insurance premiums and
$374 for long-term disability insurance premiums.

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<PAGE>

BENEFIT PLANS

1997 Stock Option Plan. The Company has adopted a stock option and incentive
plan (the "1997 Stock Option Plan"). The 1997 Stock Option Plan will be
administered by the Compensation Committee of the Board of Directors and
provides for the grant of incentive stock options intended to qualify as such
under Section 422 of the Code, non-qualified stock options, stock appreciation
rights and restricted stock to employees, officers, directors and independent
contractors (including non-employee directors) of the Company with respect to
900,000 shares of Common Stock; provided, that incentive stock options may be
granted only to employees of the Company. The 1997 Stock Option Plan permits
the Compensation Committee to select eligible employees, officers, directors
and independent contractors (including non-employee directors) of the Company
to receive awards, to determine the type and number of awards to be granted
and to determine the terms, conditions, restrictions and performance criteria
relating to any award. In connection with the Offering, the Company will grant
options to officers, employee directors and certain employees of the Company
under the 1997 Stock Option Plan with respect to an aggregate of 600,000
shares of Common Stock. See "Formation and Structure--Benefits to Related
Parties."

1996 Stock Option Plan. Options may be granted under the Company's Amended
and Restated 1996 Stock Option Plan ("1996 Plan") to employees and non-
employee directors of the Company. Options issued under the 1996 Plan may be
either incentive stock options intended to qualify as such under Section 422
of the Code or non-qualified stock options; provided, that incentive stock
options may be granted only to employees of the Company. Recipients of stock
options must enter into a written stock option agreement with the Company. As
adjusted for the Stock Split, there are 423,134 shares of Common Stock
reserved for issuance under the 1996 Plan, of which 382,985 shares are
currently eligible for issuance thereunder. No options or stock appreciation
rights were granted under the 1996 Plan for the year ended December 31, 1996,
and no Named Executive Officer exercised options during such period. Moreover,
as of December 31, 1996, no Named Executive Officer held unexercised options
granted pursuant to the 1996 Plan. Following consummation of the Offering, no
further grants of options will be made under the 1996 Plan.

Unless otherwise determined by the administrator of the 1996 Plan (the
"Administrator"), options granted to non-employee members of the Board of
Directors are exercisable immediately, and options granted to other eligible
employees may be exercised as follows: 50% of the option shares, one year
following the grant date, 75% of the option shares, two years following the
grant date and 100% of the option shares, three years following the grant
date. The Administrator may waive such installment exercise provisions at any
time based on such factors as the Administrator may determine in its sole
discretion. No stock option is exercisable more than ten years after the date
such stock option is granted.

Any option that is outstanding and not yet fully exercisable under the 1996
Plan shall become fully and immediately exercisable upon (i) the termination
of the employment of the option holder by reason of death or disability or by
the Company without "cause" or by the option holder for "good reason," if and
to the extent that either term is defined in any employment or similar
agreement between the option holder and the Company, (ii) the consummation of
an underwritten initial public offering of Common Stock by the Company or
(iii) a change in control (as defined in the 1996 Plan).

The purchase price for shares issued to an optionee upon exercise of an
option is the price determined by the Administrator at the time of grant and
may not be less than the Fair Market Value (as defined in the 1996 Plan) of
the Common Stock as of the grant date.

Holders of options granted under Holdings' 1994 Stock Option Plan, as
amended, or Holdings' 1994 Stock Option Plan for Non-Employee Directors, as
amended ("Holdings Stock Options"), are entitled to receive substitute stock
options under the 1996 Plan in the event of certain changes in the capital or
corporate structure of the Company or a subsidiary of the Company, including
an initial public offering of the Common Stock. Substitute stock options will
be granted under the 1996 Plan in substitution for then outstanding Holdings
Stock Options to the extent that the Administrator determines, in its sole
discretion, that the grant of substitute stock options is necessary to provide
that holders of Holdings Stock Options not be deprived of benefits to which

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<PAGE>

they would otherwise have been entitled had such event or events not occurred.
Any grant of a substitute stock option will be subject to the prior
cancellation and surrender of the corresponding Holdings Stock Option. The
terms and conditions of substitute stock options shall be substantially
equivalent to those of the Holdings Stock Options in respect of which the
substitute stock options are granted.

Each substitute stock option will entitle the holder to purchase that number
of shares of Common Stock equal to the product of (i)(a) the fair market value
of a share of Holdings common stock divided by (b) the fair market value of a
share of Common Stock (the "Conversion Ratio") and (ii) the number of shares
of Holdings' common stock subject to such option (rounded to the nearest whole
share). The exercise price of the substitute stock option will be equal to the
per share exercise price of the Holdings Stock Option divided by the
Conversion Ratio (rounded to the nearest cent). In connection with the
Offering, officers, directors and certain employees of the Company will
receive substitute stock options under the 1996 Plan. See "Formation and
Structure." All of such options will be exercised in connection with the
Offering.

401(k) Plan. The Company adopted its 401(k) Plan (the "401(k) Plan")
effective January 1, 1997. Each employee of the Company may enroll in the
401(k) Plan on such employee's date of hire. An employee actively employed by
the Company is eligible to receive a matching contribution under the 401(k)
Plan. Plan participants are immediately vested in their contributions to the
401(k) Plan and the matching contributions by the Company. The 401(k) Plan
permits each participant to elect to defer up to 15% of base compensation,
subject to the annual statutory limitation prescribed by Section 402(g) of the
Code, on a pre-tax basis. The Company will make matching contributions equal
to 50% of each participant's contribution.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with each of Messrs. Sudarsky, Marcus,
Gold, Kreitzer, Stone and Nelson. Mr. Sudarsky's employment agreement
previously provided that commencing on January 1, 1997 and ending on December
31, 2000, he would serve as Chairman of the Board of Directors. In connection
with the Offering, Mr. Sudarsky's employment agreement was amended to provide
that, upon consummation of the Offering, Mr. Sudarsky will retire from
employment with the Company and will continue to serve as non-executive
Chairman of the Board with no annual salary (other than the payment of
directors' fees) for a term that ends upon the next annual election of
officers. The amendment also provides a retirement benefit of $150,000 per
year for the first three years following the consummation of the Offering, at
which time the benefit will be reduced to $90,000 per year, plus an annual
cost of living increase of 2% per year for the remainder of Mr. Sudarsky's
life and Mr. Sudarsky's current spouse's life. Through the closing of the
Offering, Mr. Sudarsky will be paid a base salary of $240,000 per year.

Mr. Marcus' employment agreement provides that he will serve as the
Company's Chief Executive Officer through December 31, 2000. Mr. Marcus'
employment agreement provides for automatic one-year extensions until either
Mr. Marcus or the Company notifies the other that such party does not wish to
extend the agreement. Mr. Marcus will be paid a base salary of $235,000 per
year.

The employment agreements with each of Messrs. Gold, Kreitzer and Stone
provide for a term ending on December 31, 1998, and, with respect to Mr.
Nelson, on April 3, 1998, in each case with provision for automatic one-year
extensions until either the executive or the Company notifies the other that
such party does not wish to extend the agreement. Messrs. Gold, Nelson,
Kreitzer and Stone are paid base salaries of $190,000, $165,000, $140,000 and
$105,000 per year, respectively.

Each of the employment agreements with Messrs. Marcus, Gold, Nelson,
Kreitzer and Stone provides that such executive will be entitled to a
discretionary annual bonus and that his base salary will be subject to annual
increases, each as may be determined by the Board of Directors or a committee
thereof. In connection with the Offering, the employment agreements with
Messrs. Marcus and Gold were amended to eliminate the stated minimums with
respect to such officers' annual bonus. In connection with the Offering, in
March 1997 the Company agreed to pay bonuses to Messrs. Marcus and Gold in the
amount of $352,500 and $190,000, respectively, in consideration for past
services and the amendment of such employment agreements.

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<PAGE>

The employment agreements with each of Messrs. Marcus, Gold, Nelson,
Kreitzer and Stone also provide for standard employee benefits, including,
without limitation, participation in the Company's pension, welfare and stock
incentive plans, to the extent the Company maintains any such plans. In
addition, the employment agreements with each of Messrs. Marcus, Gold,
Kreitzer and Stone provide that the Company will maintain term life insurance
on the life of each executive in the aggregate amount of $1 million.

Each of the employment agreements with Messrs. Marcus, Gold, Kreitzer and
Stone provides that if the Company terminates the executive's employment
without "cause" or if the executive terminates his employment for "good
reason" (each as defined in the employment agreements), then such executive
shall be entitled to receive a severance payment ("Severance Payment"),
payable in monthly installments (except that portion of the Severance Payment
that represents the executive's bonus will be payable on the dates such
amounts would have been paid had such executive continued in the Company's
employment), equal to the sum of his base salary plus bonus otherwise payable
during the remainder of the term of his agreement (the "Severance Period");
provided, however, that if any of Messrs. Marcus, Gold, Kreitzer or Stone
terminates his employment for "good reason" following a "change in control"
(as defined), then such executive shall be entitled to receive a lump sum
Severance Payment equal to three times the sum of his base salary plus bonus
otherwise payable during the remaining term of the agreement. Upon termination
by reason of death or disability, Mr. Marcus will receive a Severance Payment
equal to the sum of his base salary and bonus otherwise payable during the
remaining term of his agreement. In the event that any such executive is
entitled to any Severance Payment, he will also be entitled to full and
immediate vesting of all awards granted under any of the Company's stock
option or incentive compensation plans and continued participation throughout
the Severance Period in all employee welfare and pension benefits plans. In
addition, in the event that amounts payable to executive are subject to the
excise tax imposed under Section 4999 of the Code, the Company will provide
such executive with a tax "gross up" payment in an amount sufficient to offset
the effects of such excise tax. Mr. Nelson's agreement provides that if he is
terminated for any reason other than "cause" (as defined in the agreement), he
will receive a Severance Payment, payable in monthly installments, equal to
seven and one-half months of his base salary.

The employment agreements with each of Messrs. Sudarsky, Marcus, Gold,
Nelson, Kreitzer and Stone also provide that during the term of employment,
and any period, if any, which such executive is entitled to receive Severance
Payments, such executive will not engage in any activity competitive with the
business of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

From January 1, 1996 through September 9, 1996, Messrs. Sudarsky, Marcus,
Gold, Petrone, Mehta, Elmaleh and Solomon constituted the Board of Directors
of each of Holdings and Alexandria, and Messrs. Sudarsky, Petrone and Elmaleh
constituted the Compensation Committee of each such entity. From September 9,
1996 through March 14, 1997, Thomas Eastman and Thomas Nolan, each an AEW
nominee, also served on the Board of Directors of Alexandria. In addition, on
September 9, 1996, Mr. Elmaleh resigned from the Compensation Committee of
Alexandria, and Mr. Eastman served thereon until December 5, 1996, at which
time he was replaced by Mr. Nolan, who resigned from the Compensation
Committee in March 1997. In March 1997, Mr. Elmaleh was reappointed to the
Compensation Committee.

Messrs. Sudarsky, Petrone, Elmaleh, Eastman and Nolan each served on the
Compensation Committee during 1996. Mr. Sudarsky also served as Chief
Executive Officer of the Company during 1996. Messrs. Kreitzer and Stone,
executive officers of the Company, serve on the Board of Directors of Bernardo
Capital, Inc. Mr. Gold, an executive officer of Bernardo Capital, Inc., serves
as a director of the Company. Bernardo Capital, Inc. has had no active
operations since January 1994. See "Formation and Structure--Benefits to
Related Parties."

LIMITATION OF LIABILITY AND INDEMNIFICATION

The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting

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<PAGE>

from (i) actual receipt of an improper benefit or profit in money, property or
services or (ii) active and deliberate dishonesty established by a final
judgment as being material to the cause of action. The Charter of the Company
contains a provision that eliminates such liability to the maximum extent
permitted by the MGCL.

The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (i) any
present or former director or officer or (ii) any individual who, while a
director of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee from and against any claim or liability to which such person may
become subject or to which such person may incur by reason of his or her
serving as a present or former director or officer of the Company.

The Bylaws obligate the Company, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (i) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (ii) any individual who, while a director of the Company and at
the request of the Company, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee and who is made a party
to the proceeding by reason of his service in that capacity. The Charter and
Bylaws also permit the Company, with the approval of the Board of Directors,
to indemnify and advance expenses to any person who served a predecessor of
the Company in any of the capacities described above and to any employee or
agent of the Company or a predecessor of the Company.

The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (i) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty, (ii) the director or officer actually
received an improper personal benefit in money, property or services or
(iii) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In addition, the
MGCL permits a corporation to advance reasonable expenses to a director or
officer upon the corporation's receipt of (i) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation as authorized by the
Bylaws and (ii) a written statement by or on his behalf to repay the amount
paid or reimbursed by the corporation if it shall ultimately be determined
that the standard of conduct was not met.

Each of the employment agreements with Messrs. Sudarsky, Marcus, Gold,
Nelson, Kreitzer and Stone requires that the Company indemnify such officers
to the maximum extent permitted by Maryland law, and to pay such persons'
expenses in defending any civil or criminal proceeding in advance of final
disposition of such proceeding.

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<PAGE>

CERTAIN TRANSACTIONS

Jacobs Engineering Group, Inc., a stockholder of Holdings, subleases space
to the Company in Pasadena, California. The Company pays $3,762 per month plus
expenses to Jacobs Engineering Group, Inc. under such sublease. The terms of
the sublease, which expires on October 30, 1997, were determined through
arm's-length negotiations. Jacobs Engineering Group, Inc. also has, from time
to time, provided non-exclusive consulting, engineering, design and related
services to the Company. The Company has not paid any fees to Jacobs
Engineering Group, Inc. for such services. Mr. Petrone, a director of the
Company, is also a director of Jacobs Engineering Group, Inc.

Holdings, a stockholder of the Company, will receive $2.5 million from the
proceeds of the Offering as repayment of an advance made to the Company for
general working capital purposes. Such proceeds will be used by Holdings to
repay loans from certain stockholders of Holdings. See "Use of Proceeds" and
"Formation and Structure--Benefits to Related Parties."

A partner of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the Company and Holdings, owns 9,465 shares of Holdings common stock
(representing approximately 9.0% of the outstanding shares of Holdings common
stock), 13,333 shares of Holdings Series A Preferred Stock and 1,042 shares of
Holdings Series B Preferred Stock. In addition, such partner will receive
$197,500 from Holdings in connection with the Offering as repayment of certain
loans made to Holdings that were advanced to the Company for general working
corporate purposes. During 1996, the Company paid $1.4 million to Skadden,
Arps, Slate, Meagher & Flom LLP for legal services provided to the Company.
See "Formation and Structure."

Upon consummation of the Offering and the Formation Transactions, Bernardo
Capital, Inc. (a corporation of which Messrs. Gold, Kreitzer and Stone are
stockholders) will receive from Holdings approximately $517,000 as
reimbursement for certain expenses, including accrued salaries and benefits
paid to each of Messrs. Gold, Kreitzer and Stone, incurred in connection with
the formation of Holdings in 1993. These funds will be paid by Holdings, and
no proceeds of the Offering will be utilized for this purpose. See "Use of
Proceeds" and "Formation and Structure--Benefits to Related Parties."

In December 1994, Alexandria issued four shares of Series T Preferred Stock
to each of Messrs. Sudarsky, Marcus and Gold, each of whom are officers and
directors of the Company, in connection with certain REIT requirements of the
Code. Pursuant to the terms thereof, upon consummation of the Offering, each
outstanding share of Series T Preferred Stock will be redeemed for cash in an
amount equal to its stated value of $100. See "Formation and Structure."

In January 1996, Alexandria issued 220 shares of Series U Preferred Stock to
126 holders, including certain officers and directors of the Company (or
members of their immediate families), in connection with certain REIT
requirements of the Code. In connection with the Offering, the outstanding
shares of Series U Preferred Stock have been converted into an aggregate of
approximately 7,354 shares of Common Stock, representing 0.1% of the shares of
Common Stock to be outstanding upon consummation of the Offering and the
Formation Transactions. See "Formation and Structure."

In 1996, Alexandria issued 27,500 shares of Series V Preferred Stock to AEW
in a series of transactions to raise additional equity capital. In connection
with the issuance of the Series V Preferred Stock, the Company granted to AEW
certain registration rights with respect to the shares of Common Stock to be
received in exchange for its shares of Series V Preferred Stock. See "Shares
Eligible for Future Sale." The terms of the Series V Preferred Stock were
determined through arm's-length negotiations. As a result of the conversion of
the shares of Series V Preferred Stock, AEW will own 1,659,239 shares of
Common Stock, representing approximately 16.0% of the shares of Common Stock
to be outstanding upon consummation of the Offering and the Formation
Transactions. In addition, AEW will receive its regular quarterly dividend,
pro rated from April 1, 1997 to the date of conversion (approximately $435,000
in the aggregate). See "Formation and Structure." Prior to consummation of the
Offering, Holdings, as the holder of the outstanding shares of Common Stock,
will also receive a quarterly dividend, pro rated from April 1, 1997 to such
date (approximately $475,000 in the aggregate).

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<PAGE>

In connection with the Offering, as compensation for services rendered to
the Company, officers, directors and certain employees of the Company will be
granted an aggregate of 152,615 shares of Common Stock. In addition, in
connection with the Offering, officers, directors and certain employees of the
Company will receive options to purchase 57,000 shares of Common Stock
pursuant to the Company's existing stock option plan in substitution for
previously granted Holdings Stock Options (such stock options will be
exercised in connection with the Offering at a nominal exercise price and
thereafter no further stock options will be issued under this plan). In
connection with the Offering, the Company will grant options to officers,
directors and employees of the Company to purchase an aggregate of 600,000
shares of Common Stock at the initial public offering price under the 1997
Stock Option Plan. See "Formation and Structure--Benefits to Related Parties."
Options granted to officers and directors of the Company under the 1997 Stock
Option Plan will vest ratably over a three-year period. Options granted to
non-employee directors under the 1997 Stock Option Plan will vest immediately
upon the date of grant.

In connection with the Offering, the Company will grant to Holdings
customary transferable registration rights with respect to the shares of
Common Stock held by it. See "Shares Eligible for Future Sale."

In connection with seeking financing for the acquisition of the Acquisition
LLC Properties, the Company negotiated with several third party lenders,
including PaineWebber. Based on the financing proposals presented by the
various lenders, the Company determined that the financing arrangement
presented by PaineWebber was the most favorable available to the Company. The
parties entered into the LLC Agreement, which required that the Company
acquire the membership interests in the Acquisition LLC upon the earlier to
occur of September 30, 1998, the Offering, or certain events of default as
specified therein, and the purchase contracts related to the Acquisition LLC
Properties were assigned to the Acquisition LLC. Concurrently with the
Offering, the Company will acquire 100% of the membership interests in the
Acquisition LLC from the PW Affiliates. Pursuant to the LLC Agreement, (i) the
Company agreed to pay the PW Affiliates an acquisition fee and (ii) the
purchase price for the Acquisition LLC equals the original purchase price of
the Acquisition LLC Properties (as adjusted for the acquisition fee and cash
flow from the Acquisition LLC Properties) plus a percentage of the excess of
(x) the aggregate fair market value (as defined) of the Acquisition LLC
Properties on the date of purchase of the Acquisition LLC by the Company over
(y) the adjusted purchase price. The aggregate fair market value on the date
of purchase of the Acquisition LLC by the Company will be based on the "IPO
Multiple" (as defined in the LLC Agreement) and "Funds From Operations
generated by the Properties" (as defined in the LLC Agreement). To facilitate
consummation of the Offering, at the request of the Company, the PW Affiliates
have agreed to amend the LLC Agreement to reduce the purchase price by
approximately $766,000. The purchase price for the Acquisition LLC (calculated
using the above formula and after giving effect to the $766,000 reduction) is
approximately $58.9 million. The Company will treat the difference
(approximately $7.2 million) between the purchase price for the membership
interests in the Acquisition LLC and the original purchase price of the
Acquisition LLC Properties paid by the Acquisition LLC (approximately $51.7
million) as a financing cost that will be recognized when the transaction is
completed. In addition, PaineWebber, lead managing Underwriter of the
Offering, and certain of its affiliates, will receive certain other benefits
in connection with the Offering. See "Use of Proceeds," "Formation and
Structure" and "Underwriting."

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SHARE OWNERSHIP

PRINCIPAL STOCKHOLDERS OF ALEXANDRIA

The following table sets forth certain information as of April 30, 1997
regarding the beneficial ownership of the Common Stock with respect to (i)
each director of the Company, (ii) each Named Executive Officer, (iii) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock and (iv) all directors and executive
officers as a group, assuming exercise of options to purchase 57,000 shares of
Common Stock under the 1996 Plan and the issuance of 152,615 shares of Common
Stock in connection with the Offering. The following table excludes options to
purchase 600,000 shares of Common Stock to be granted to officers, directors
and employees under the Company's 1997 Stock Option Plan. See "Formation and
Structure--Benefits to Related Parties."

<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
NUMBER OF SHARES OWNED
BENEFICIALLY -----------------
OWNED PRIOR TO PRIOR TO AFTER
BENEFICIAL OWNER(1) OFFERING OFFERING OFFERING
- ------------------- ---------------- -------- --------
<S> <C> <C> <C>
Jerry M. Sudarsky(2)....................... 1,775,642 89.9% 17.1%
Joel S. Marcus(3).......................... 1,849,223 93.6 17.8
Alan D. Gold(4)............................ 1,806,871 91.5 17.4
Gary A. Kreitzer........................... 17,709 * *
Steven A. Stone............................ 18,099 * *
Joseph Elmaleh(5).......................... 1,770,816 89.6 17.0
Viren Mehta(6)............................. 4,893 * *
David M. Petrone........................... 4,893 * *
Anthony M. Solomon......................... 4,893 * *
Holdings(7)................................ 1,765,923 89.4 17.0
AEW Partners II, L.P.
225 Franklin Street
Boston, Massachusetts(8).................. -- * 16.0
Executive officers and directors as a group
(10 persons)(9)........................... 1,958,367 99.1 18.0
</TABLE>
- --------
* less than 1%.
(1) Unless otherwise indicated, the business address of each beneficial owner
is c/o Alexandria Real Estate Equities, Inc., 251 S. Lake Avenue, Suite
700, Pasadena, CA 91101.
(2) Includes shares held by the Jerry M. and Mildred Sudarsky 1979 Revocable
Trust, of which Mr. Sudarsky is the trustee, and 1,765,923 shares owned by
Holdings, which may be deemed to be beneficially owned by Mr. Sudarsky.
Mr. Sudarsky disclaims beneficial ownership of the shares of Common Stock
owned by Holdings.
(3) Includes shares held by the Joel and Barbara Marcus Family Trust, of which
Mr. Marcus is the trustee, and 1,765,923 shares owned by Holdings, which
may be deemed to be beneficially owned by Mr. Marcus. Mr. Marcus disclaims
beneficial ownership of the shares of Common Stock owned by Holdings.
(4) Includes 1,765,923 shares owned by Holdings, which may be deemed to be
beneficially owned by Mr. Gold. Mr. Gold disclaims beneficial ownership of
the shares of Common Stock owned by Holdings.
(5) Includes 1,765,923 shares owned by Holdings, which may be deemed to be
beneficially owned by Mr. Elmaleh. Mr. Elmaleh disclaims beneficial
ownership of the shares of Common Stock owned by Holdings.
(6) Includes shares held by Mehta and Isaly, of which Mr. Mehta is a partner.
(7) Each of Messrs. Sudarsky, Marcus, Gold and Elmaleh is a member of the
board of directors and a stockholder of Holdings. See "--Certain
Beneficial Ownership in Holdings." As a result, each such individual may
be deemed to be the beneficial owner of the shares of Common Stock owned
by Holdings. In addition, Jacobs Engineering Group, Inc. and an affiliate
own approximately 26.1% of the outstanding voting securities of Holdings
but disclaim beneficial ownership of the shares of Common Stock owned by
Holdings.
(8) AEW owns 27,500 shares of Series V Preferred Stock, including 6,666 shares
held by AEW Health Science Properties Co-Investment, L.P., which may be
deemed to be beneficially owned by AEW Partners II, L.P. Upon consummation
of the Offering and the Formation Transactions, such shares of Series V
Preferred Stock will be converted into 1,659,239 shares of Common Stock.
(9) See notes (2) through (7) above.

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CERTAIN BENEFICIAL OWNERSHIP IN HOLDINGS

The following table sets forth certain information regarding the beneficial
ownership of the Holdings common stock as of April 30, 1997, with respect to
(i) each director of Alexandria, (ii) each Named Executive Officer and (iii)
all directors and executive officers of Alexandria as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
HOLDINGS COMMON STOCK PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
- ---------------- --------------------- ---------------------
<S> <C> <C>
Jerry M. Sudarsky(2).............. 11,340 10.4%
Joel S. Marcus(3)................. 6,626 6.1
Alan D. Gold(4)................... 10,729 9.8
Gary A. Kreitzer(5)............... 6,012 5.5
Steven A. Stone(6)................ 8,055 7.4
Joseph Elmaleh(7)................. 9,969 9.1
Viren Mehta(8).................... 500 *
David M. Petrone(9)............... 500 *
Anthony M. Solomon(10)............ 500 *
Executive officers and directors
as a group (9 persons)(11)....... 54,231 49.7
</TABLE>
- --------
* Less than 1%
(1) Excludes the effect of shares issuable upon conversion or exchange of
certain convertible and exchangeable securities of Holdings currently
outstanding. Such securities are not convertible or exchangeable until the
occurrence of certain events.
(2) Includes shares held by the Jerry M. and Mildred Sudarsky 1979 Revocable
Trust, of which Mr. Sudarsky is the Trustee. Excludes 875 shares issuable
upon the exercise of options granted under the 1994 Plan for which
substitute stock options will be granted under the 1996 Plan.
(3) Includes shares held by the Joel and Barbara Marcus Family Trust, of which
Mr. Marcus is the Trustee. Excludes 6,123 shares issuable upon the
exercise of options granted under the 1994 Plan for which substitute stock
options will be granted under the 1996 Plan.
(4) Excludes 1,601 shares issuable upon the exercise of options granted under
the 1994 Plan for which substitute stock options will be granted under the
1996 Plan.
(5) Excludes 803 shares issuable upon the exercise of options granted under
the 1994 Plan for which substitute stock options will be granted under the
1996 Plan.
(6) Excludes 885 shares issuable upon the exercise of options granted under
the 1994 Plan for which substitute stock options will be granted under the
1996 Plan.
(7) Excludes 250 shares issuable upon the exercise of options granted under
the 1994 Plan for which substitute stock options will be granted under the
1996 Plan. Includes shares beneficially owned by Southern Shipping and
Energy, Inc., of which Mr. Elmaleh is the Chairman of the Board.
(8) Excludes 250 shares issuable upon the exercise of options granted under
the 1994 Plan for which substitute stock options will be granted under the
1996 Plan. Includes 500 shares held by Mehta and Isaly, of which Mr. Mehta
is a partner.
(9) Excludes 250 shares issuable upon the exercise of options granted under
the 1994 Plan for which substitute stock options will be granted under the
1996 Plan.
(10) Excludes 250 shares issuable upon the exercise of options granted under
the 1994 Plan for which substitute stock options will be granted under
the 1996 Plan.
(11) See notes (2) through (10) above.

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DESCRIPTION OF CAPITAL STOCK

The following summary of the terms of the stock of the Company existing upon
consummation of the Offering and the Formation Transactions does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Company's Charter and Bylaws, copies of which are exhibits to the
Registration Statement. See "Additional Information."

GENERAL

The Charter provides that the Company may issue up 100,000,000 shares of
Common Stock, 100,000,000 shares of Preferred Stock and 200,000,000 shares of
Excess Stock (as defined below). Upon consummation of the Offering and the
Formation Transactions, 10,392,131 shares of Common Stock will be issued and
outstanding and no shares of Preferred Stock will be issued and outstanding.
See "Formation and Structure." Under Maryland law, stockholders generally are
not liable for a corporation's debts or obligations.

COMMON STOCK

All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other class
or series of stock and to the provisions of the Charter regarding the
restrictions on transfer of stock, holders of shares of Common Stock are
entitled to receive distributions on such shares if, as and when authorized
and declared by the Board of Directors out of assets legally available
therefor and to share ratably in the assets of the Company legally available
for distribution to its stockholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of the Company.

Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, each outstanding share of Common Stock entitles the holder
thereof to one vote on all matters submitted to a vote of stockholders,
including the election of directors, and, except as provided with respect to
any other class or series of stock, the holders of such shares will possess
the exclusive voting power. A plurality of all the votes cast at a meeting at
which a quorum is present is sufficient to elect a director. There is no
cumulative voting in the election of directors, which means that the holders
of a majority of the outstanding shares of Common Stock can elect all of the
directors then standing for election, and the holders of the remaining shares
will not be able to elect any directors.

Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of the Company. Subject to the provisions of the
Charter regarding restriction on transfer of stock, shares of Common Stock
will have equal distribution, liquidation and other rights.

Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business without the affirmative vote of stockholders holding at least two
thirds of the shares entitled to vote on the matter unless a lesser percentage
(but not less than a majority of all of the votes entitled to be cast on the
matter) is set forth in the corporation's charter. The Company's Charter
provides for approval of such matters by the affirmative vote of a majority of
all of the votes entitled to be cast thereon.

The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.

PREFERRED STOCK

The Charter authorizes the Board of Directors, without the approval of the
stockholders of the Company, to classify any unissued shares of Preferred
Stock and to reclassify any previously classified but unissued shares of

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any series, as authorized by the Board of Directors. Prior to issuance of
shares of each series, the Board of Directors is required by the MGCL and the
Charter of the Company to set, subject to the provisions of the Charter
regarding restrictions on transfer of stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board of Directors could authorize
the issuance of shares of Preferred Stock with terms and conditions which
could have the effect of delaying, deferring or preventing a transaction or a
change in control of the Company that might involve a premium price for
holders of Common Stock or otherwise be in their best interest. Upon
consummation of the Offering and the Formation Transactions, there will be no
shares of Preferred Stock outstanding, and the Company has no present plans to
issue any additional shares of Preferred Stock. See "Formation and Structure."

POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK

The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock
and to classify or reclassify unissued shares of Common Stock or Preferred
Stock and thereafter to cause the Company to issue such classified or
reclassified shares of stock will provide the Company with increased
flexibility in structuring possible future financing and acquisitions and in
meeting other needs which might arise. The additional classes or series, as
well as the Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation
system on which the Company's securities may be listed or traded. Although the
Board of Directors has no present intention to do so, it could authorize the
Company to issue a class or series that could, depending upon the terms of
such class or series, delay, defer or prevent a transaction or a change in
control of the Company that might involve a premium price for holders of
Common Stock or otherwise be in their best interest. See "Risk Factors--Anti-
takeover Effect of Ownership Limit and Power to Issue Additional Stock."

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code, not more than 50% of
the value of its outstanding stock may be owned, directly or constructively,
by five or fewer individuals or entities (as set forth in the Code) during the
last half of a taxable year (other than the first year for which an election
to be a REIT has been made). Also, shares of its outstanding stock must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year for which an election to
be a REIT has been made) or during a proportionate part of a shorter taxable
year.

In order for the Company to maintain its qualification as a REIT, the
Company's Charter provides for the Ownership Limit, which prohibits, with
certain exceptions, direct or constructive ownership of shares of stock
representing more than 9.8% of the combined total value of outstanding shares
of the Company's stock by any person, as defined in the Charter.

The Board of Directors, in its sole discretion, may waive the Ownership
Limit for any person. However, the Board may not grant such waiver if, after
giving effect to such waiver, five individuals could beneficially own, in the
aggregate, more than 49.9% of the value of the Company's outstanding stock. As
a condition to waiving the Ownership Limit, the Board of Directors may require
a ruling from the IRS or an opinion of counsel in order to determine the
Company's status as a REIT. Notwithstanding the receipt of any such ruling or
opinion, the Board of Directors may impose such conditions or restrictions as
it deems appropriate in connection with granting such waiver. The Charter
excepts Holdings and AEW from the Ownership Limit. Therefore, Holdings and AEW
will be permitted to own in the aggregate, actually or constructively, 17.0%
and 16.0% of the Common Stock, respectively.

The Company's Charter further prohibits (a) any person from beneficially or
constructively owning shares of stock of the Company that would result in the
Company being "closely held" under Section 856(h) of the Code and (b) any
person from transferring shares of stock of the Company if such transfer would
result in shares

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of stock of the Company being owned by fewer than 100 persons. Any transfer in
violation of any of such restrictions is void ab initio. Any person who
acquires or attempts to acquire beneficial or constructive ownership of shares
of stock of the Company in violation of the foregoing restrictions on
transferability and ownership is required to give notice immediately to the
Company and provide the Company with such other information as the Company may
request in order to determine the effect of such transfer on the Company's
status as a REIT. The foregoing restrictions on transferability and ownership
will not apply if the Board of Directors determines that it is no longer in
the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT.

If any transfer of shares of stock of the Company or other event occurs
that, if effective, would result in any person beneficially or constructively
owning shares of stock of the Company in excess or in violation of the above
transfer or ownership limitations (a "Prohibited Owner"), then that number of
shares of stock of the Company the beneficial or constructive ownership of
which otherwise would cause such person to violate such limitations (rounded
to the nearest whole share) shall be automatically exchanged for an equal
number of shares of excess stock (the "Excess Stock") and such shares of
Excess Stock shall be automatically transferred to a trust (the "Trust") for
the exclusive benefit of one or more charitable beneficiaries (the "Charitable
Beneficiary"), and the Prohibited Owner shall generally not acquire any rights
in such shares. Such automatic exchange shall be deemed to be effective as of
the close of business on the business day prior to the date of such violative
transfer. Shares of Excess Stock held in the Trust shall be issued and
outstanding shares of stock of the Company. The Prohibited Owner shall not
benefit economically from ownership of any shares of Excess Stock held in the
Trust, shall have no rights to distributions and shall not possess any rights
to vote or other rights attributable to the shares of Excess Stock held in the
Trust. The trustee of the Trust (the "Trustee") shall have all voting rights
and rights to dividends or other distributions with respect to shares of stock
held in the Trust, which rights shall be exercised for the exclusive benefit
of the Charitable Beneficiary. Any dividend or other distribution paid prior
to the discovery by the Company that shares of stock have been transferred to
the Trustee shall be paid by the recipient of such dividend or distribution to
the Company upon demand, or, at the Company's sole election, shall be offset
against any future dividends or distributions payable to the purported
transferee or holder, and any dividend or distribution authorized but unpaid
shall be rescinded as void ab initio with respect to such shares of stock and
promptly thereafter paid over to the Trustee with respect to such shares of
Excess Stock, as trustee of the Trust for the exclusive benefit of the
Charitable Beneficiary. The Prohibited Owner shall have no voting rights with
respect to shares of Excess Stock held in the Trust and, subject to Maryland
law, effective as of the date that such shares of stock have been transferred
to the Trustee, the Trustee shall have the authority (at the Trustee's sole
discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior
to the discovery by the Company that such shares have been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary. However, if the
Company has already taken irreversible corporate action, then the Trustee
shall not have the authority to rescind and recast such vote.

Within 180 days after the date of the event that resulted in shares of
Excess Stock of the Company being transferred to the Trust (or as soon as
possible thereafter if the Trustee did not learn of such event within such
period), the Trustee shall sell the shares of stock held in the Trust to a
person, designated by the Trustee, whose ownership of the shares will not
violate the ownership limitations set forth in the Charter. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold shall terminate
and such shares of Excess Stock shall be automatically exchanged for an equal
number of shares of the same class or series of stock that originally were
exchanged for the Excess Stock. The Trustee shall distribute to the Prohibited
Owner, as appropriate (i) the price paid by the Prohibited Owner for the
shares, (ii) if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Trust (e.g., a
gift, devise or other such transaction), the Market Price (as defined in the
Charter) of such shares on the day of the event causing the shares to be held
in the Trust, or (iii) if the exchange for Excess Stock did not arise as a
result of a purported transfer, the Market Price of such Shares on the day of
the other event causing the Shares to be held in the Trust. If such shares are
sold by a Prohibited Owner, then to the extent that the Prohibited Owner
received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to the aforementioned
requirement, such excess shall be paid to the Trustee.

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All certificates representing shares of Common Stock and Preferred Stock
will bear a legend referring to the restrictions described above.

Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of
the Company's stock, including shares of Common Stock, within 30 days after
the end of each taxable year, is required to give written notice to the
Company stating the name and address of such owner, the number of shares of
each class and series of stock of the Company which the owner beneficially
owns and a description of the manner in which such shares are held. Each such
owner shall provide to the Company such additional information as the Company
may reasonably request in order to determine the effect, if any, of such
beneficial ownership on the Company's status as a REIT. In addition, each
stockholder shall upon demand be required to provide to the Company such
information as the Company may reasonably request in order to determine the
Company's status as a REIT, to comply with the requirements of any taxing
authority or governmental authority or to determine such compliance, or to
comply with the REIT provisions of the Code.

These ownership limits could delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price for the
Common Stock or otherwise be in the best interest of the stockholders. See
"Risk Factors--Anti-takeover Effect of Ownership Limit and Power to Issue
Additional Stock."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS

The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and the
Charter and Bylaws of the Company, copies of which are exhibits to the
Registration Statement. See "Additional Information."

BOARD OF DIRECTORS

The Company's Bylaws provide that the number of directors of the Company may
be established by the Board of Directors, but may not be fewer than the
minimum number required by the MGCL nor more than 15. Any vacancy will be
filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors must be filled by a
majority of the entire Board of Directors. All directors are elected to hold
office until the next annual meeting of stockholders of the Company and until
their successors are duly elected and qualify. Pursuant to a contractual
arrangement with the Company, AEW has the right to include two nominees on the
ballot for the election of directors of the Company, and one nominee on the
ballot for the election of directors of QRS, so long as AEW owns Common Stock
representing more than 15% of the voting securities of the Company, and the
right to include one nominee on the ballot for the election of directors of
the Company so long as AEW owns Common Stock representing more than 7% of such
securities. Holdings has agreed to vote its shares of Common Stock for such
nominees included on the ballot for the election of directors of the Company,
and the Company has agreed to take all actions necessary to cause the election
of the nominees at QRS. No directors currently serve on the board of directors
of the Company or QRS pursuant to such arrangement, although AEW may, at its
discretion, exercise its right to include nominees on the ballot in the
future. If, at any time, AEW's ownership of Common Stock represents less than
15% of the voting securities of the Company, within 10 days of such decrease
in ownership, AEW will cause one director elected or nominated by it to resign
from the Board of Directors and all committees thereof, and from the board of
directors of QRS and all committees thereof.

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Upon AEW's ownership of Common Stock decreasing to less than 7% of the
outstanding voting securities of the Company, within 10 days of such decrease
in ownership, AEW shall cause all directors nominated by it pursuant to this
arrangement to resign from the Board of Directors and all committees thereof.
Upon consummation of the Offering and the Formation Transactions, AEW will own
16.0% of the outstanding voting securities of the Company. See "Management--
Election of Directors and Director Compensation."

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of the corporation and (ii) two thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. Pursuant to an act of the Board of Directors, any
business combination between the Company and AEW is exempt from the above-
described provisions of the MGCL. Additionally, immediately prior to the
consummation of the Offering, the Board of Directors will adopt a resolution
providing that the "business combination" provisions of the MGCL shall not
apply to the Company generally and that such resolution is irrevocable unless
revocation, in whole or in part, is approved by the holders of a majority of
the outstanding shares of Common Stock, but revocation will not affect any
business combination consummated, or the subject of any then existing
agreement entered into, prior to the revocation. As a result of the foregoing,
AEW and any person who becomes an Interested Stockholder following the
Offering may be able to enter into business combinations with the Company that
may not be in the best interest of the stockholders, without compliance by the
Company with the voting requirements and other provisions of the MGCL.

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.

Under Maryland law, a person who has made or proposes to make a control
share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the board of directors of the
corporation to call a special meeting of stockholders to be held within 50
days of demand to consider the voting rights of the shares. If no request for
a meeting is made, the corporation may itself present the question at any
meeting of the stockholders.

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If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a meeting of the
stockholders and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
The fair value of the shares as determined for purposes of such appraisal
rights may not be less than the highest price per share paid by the acquiror
in the control share acquisition.

The control share acquisition statute does not apply (i) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (ii) to acquisitions approved or exempted by the charter or
bylaws of the corporation.

The Bylaws contain a provision exempting from the control share acquisition
statute any acquisition by any person of the Company's shares of stock. The
Board of Directors has resolved that, subject to Maryland law, the provision
may not be amended or repealed without the approval of holders of at least a
majority of the outstanding shares of Common Stock. There can be no assurance,
however, that such provision will not be amended or eliminated in the future
or that such resolution is enforceable under Maryland law.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by or at the
direction of the Board of Directors or (c) by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice procedures set
forth in the Bylaws and (ii) with respect to special meetings of stockholders,
only the business specified in the Company's notice of meeting may be brought
before the meeting of stockholders and nominations of persons for election to
the Board of Directors may be made only (a) pursuant to the Company's notice
of the meeting, (b) by or at the direction of the Board of Directors or (c)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions set forth in the
Bylaws.

AMENDMENT TO THE CHARTER OR BYLAWS

As permitted by the MGCL, the Charter provides that it may be amended by the
affirmative vote of the holders of a majority of votes entitled to be cast on
the matter. The Board of Directors has the exclusive power to adopt, alter,
repeal or amend the Bylaws.

DISSOLUTION OF THE COMPANY

As permitted by the MGCL, the Charter provides that dissolution of the
Company must be approved by the affirmative vote of the holders of not less
than a majority of all of the votes entitled to be cast on the matter. See
"Description of Capital Stock--Common Stock."

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS

The business combination provisions and the control share acquisition
provisions of the MGCL, in each case if such provisions ever become applicable
to the Company, and the advance notice provisions of the Bylaws could delay,
defer or prevent a transaction or a change in control of the Company that
might involve a premium price for holders of Common Stock or otherwise be in
their best interest.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering and the Formation Transactions, there will
be 10,392,131 shares of Common Stock issued and outstanding (11,404,631 if the
Underwriters' over-allotment option is exercised in full). The shares
outstanding will include 1,765,923 shares of Common Stock held by Holdings,
209,615 shares of Common Stock held directly by officers and directors of the
Company, and 1,659,239 shares of Common Stock held by AEW (collectively, the
"Restricted Shares"). In addition, the Company has reserved 900,000 shares of
Common Stock for issuance to officers, directors and certain employees of the
Company pursuant to the 1997 Stock Option Plan, of which options for 600,000
shares will be issued in connection with the Offering. All of the Shares
issued in the Offering will be freely tradeable by persons other than
Affiliates (as defined below) without registration or other restrictions under
the Securities Act, subject to limitations set forth in the Charter and, in
certain cases, to the additional contractual restrictions described below. The
Restricted Shares and shares issued upon the exercise of options (unless
issued pursuant to an effective registration statement) will be "restricted
securities" under the meaning of Rule 144 promulgated under the Securities Act
("Rule 144"), and may be sold only pursuant to an effective registration
statement under the Securities Act or an applicable exemption, including an
exemption under Rule 144, under the Securities Act.

In general, under Rule 144 as in effect as of April 29, 1997, a person (or
persons whose shares are aggregated), including an "affiliate" as that term is
defined in Rule 144 (an "Affiliate"), who has beneficially owned his or her
"restricted securities" for at least one year, is entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (approximately
103,921 shares immediately after the Offering) or the average weekly trading
volume of Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144
are also subject to certain restrictions on the manner of sale, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of
"restricted securities" from the Company or from any Affiliate of the Company,
and the acquiror or subsequent holder thereof is deemed not to have been an
Affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such shares of Common Stock in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.

The Company and the Continuing Investors have agreed with the Underwriters,
subject to certain limited exceptions, not to offer, sell, contract to sell,
pledge, grant any option to purchase or otherwise dispose of any shares of
Common Stock (or any securities convertible into, or exercisable, exchangeable
or redeemable for, shares of Common Stock) for a period of 360 days from the
date of this Prospectus, without the prior written consent of PaineWebber.
Management of the Company, including Messrs. Sudarsky, Marcus, Gold, Nelson,
Kreitzer, Stone and Ciruzzi, have agreed with the Underwriters, subject to
certain limited exceptions, not to offer, sell, contract to sell, pledge or
otherwise dispose of any shares of Common Stock (or any securities convertible
into, or exercisable, exchangeable or redeemable for, shares of Common Stock),
including any shares of Common Stock that any such persons may have the right
to receive by virtue of their ownership interest in Holdings, for a period of
two years from the date of this Prospectus, without the prior written consent
of PaineWebber. After such time, such shares of Common Stock may be sold in
the public market, subject to applicable securities laws restrictions or
exemptions from registration, if available. The Company has granted to AEW
certain registration rights in connection with the Restricted Shares owned by
them. AEW has the ability to "demand" that the Company under certain
circumstances and subject to certain conditions, prepare and file a shelf
registration statement within a specified time period after the Offering with
respect to the resale of shares of Common Stock issued upon conversion of the
Series V Preferred Stock. AEW also has certain rights following an initial
public offering to have shares of Common Stock registered incidentally to any
registration being conducted by the Company with respect to the Common Stock.
The Company will also grant to Holdings customary transferable registration
rights with respect to the shares of Common Stock held by it. See "Formation
and Structure--Benefits to Related Parties."

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The Company intends to issue options to purchase shares of Common Stock to
directors, officers and employees of the Company from time to time after the
Offering. See "Management--Benefits Plans." The Company expects to file a
registration statement on Form S-8 with the Commission with respect to the
shares of Common Stock issuable under stock option plans of the Company
following the Offering. Shares of Common Stock issued after the effective date
of any such registration statement on Form S-8 upon the exercise of options
granted under any such plan will be available for sale in the public market
without restriction to the extent that such shares are held by persons who are
not Affiliates of the Company.

Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock on the NYSE is expected to commence immediately
following consummation of the Offering, upon official notice of issuance,
under the symbol "ARE." No prediction can be made as to the effect, if any,
that future sales of shares, or the availability of shares for future sale,
will have on the market price prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales occur,
could adversely affect prevailing market prices of the Common Stock.

FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material federal income tax considerations
regarding an investment in Common Stock of the Company is based on current
law, is for general information only and is not tax advice. This discussion
does not purport to deal with all aspects of taxation that may be relevant to
particular investors in light of their personal investment or tax
circumstances, or, except to the extent discussed under the headings "Taxation
of Tax-Exempt Stockholders" and "Taxation of Non-U.S. Stockholders," to
certain types of investors (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the U.S.) that are subject to
special treatment under the federal income tax laws. This discussion assumes
that investors will hold the Common Stock as a "capital asset" (generally,
property held for investment) under the Code.

EACH PROSPECTIVE PURCHASER SHOULD CONSULT WITH ITS TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF THE COMMON
STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

General. The REIT provisions of the Code are highly technical and complex.
The following sets forth the material aspects of the provisions of the Code
that govern the federal income tax treatment of a REIT and its stockholders.
This summary is qualified in its entirety by the applicable Code provisions,
rules and regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change which may apply
retroactively.

The Board of Directors intends that the Company will operate in a manner
that permits it to elect, and that it will elect, REIT status for the taxable
year ended December 31, 1996, and the Company intends to continue to operate
in such a manner. Skadden, Arps, Slate, Meagher & Flom LLP has issued an
opinion that, commencing with the Company's taxable year ending December 31,
1996, the Company was organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation, and its actual
method of operation since January 1, 1996 through the date of the opinion, has
and will enable it to meet the requirements for qualification and taxation as
a REIT under the Code. It must be emphasized that this opinion was based and
conditioned upon certain assumptions and representations made by the Company
as to factual matters (including representations of the Company concerning,
among other things, its business and properties, the amount of rents
attributable to personal property and other items regarding the Company's
ability

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to meet the various requirements for qualification as a REIT). The opinion is
expressed as of its date, and Skadden, Arps, Slate, Meagher & Flom LLP will
have no obligation to advise holders of Common Stock of any subsequent change
in the matters stated, represented or assumed or any subsequent change in the
applicable law. Moreover, such qualification and taxation as a REIT depends
upon the Company having met and continuing to meet, through actual annual
operating results, distribution levels and diversity of stock ownership, the
various qualification tests imposed under the Code as discussed below, the
results of which will not be reviewed by Skadden, Arps, Slate, Meagher & Flom
LLP. Accordingly, no assurance can be given that the actual results of the
Company's operation for any particular taxable year have satisfied or will
satisfy such requirements. See "--Failure to Qualify." An opinion of counsel
is not binding on the IRS, and no assurance can be given that the IRS will not
challenge the Company's eligibility for taxation as a REIT.

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business other than
foreclosure property), such income will be subject to a 100% tax. Fourth, if
the Company should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75%
or 95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Fifth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, the Company would
be subjected to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed during such year. Sixth, if during the
10-year period (the "Recognition Period") beginning on the first day on the
first taxable year for which the Company qualified as a REIT, the Company
recognizes gain on the disposition of any asset held by the Company as of the
beginning of such Recognition Period, then, to the extent of the excess of (a)
the fair market value of such asset as of the beginning of such Recognition
Period over (b) the Company's adjusted basis in such asset as of the beginning
of such Recognition Period (the "Built-in Gain"), such gain will be subject to
tax at the highest regular corporate tax rate pursuant to IRS regulations that
have not yet been promulgated. Seventh, if the Company acquires any asset from
a C corporation (i.e., generally a corporation subject to full corporate level
tax) in a transaction in which the basis of the asset in the Company's hands
is determined by reference to the basis of the asset (or any other property)
in the hands of the C corporation, and the Company recognizes gain on the
disposition of such asset during the Recognition Period beginning on the date
on which such asset was acquired by the Company, then, to the extent of the
Built-in Gain, such gain will be subject to tax at the highest regular
corporate rate pursuant to IRS regulations that have not yet been promulgated.

Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (3) that would be taxable
as a domestic corporation, but for the special Code provisions applicable to
REITs; (4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (5) the beneficial ownership of
which is held by 100 or more persons; (6) in which, during the last half of
each taxable year, not more than 50% in value of the outstanding stock is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities); and (7) that meets certain other tests
described below (including with respect to the nature of its income and
assets). The Code provides that conditions (1) through (4) must be met during
the entire taxable year, and that condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months.

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The Company believes that it has already issued sufficient shares to allow
it to satisfy conditions (5) and (6) above. In order to comply with the share
ownership tests described in conditions (5) and (6) above, the Company's
Charter provides certain restrictions on the transfer of its capital stock to
prevent concentration of stock ownership. These restrictions may not ensure
that, in all cases, the Company will be able to satisfy the share ownership
tests set forth above. If the Company fails to satisfy such requirements, the
Company's status as a REIT will terminate.

To monitor the Company's compliance with such share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year
from the record holders of certain percentages of its stock in which the
record holders are to disclose the actual owners of the shares (i.e., the
persons required to include in gross income the REIT dividends). A list of
those persons failing or refusing to comply with this demand must be
maintained as part of the Company's records. A stockholder who fails or
refuses to comply with the demand must submit a statement with its tax return
disclosing the actual ownership of the shares and certain other information.
See "Description of Capital Stock--Restrictions on Transfer."

In the case of a REIT that is a partner in a partnership, regulations
provide that the REIT is deemed to own its proportionate share of the
partnership's assets and to earn its proportionate share of the partnership's
income. In addition, the assets and gross income of the partnership retain the
same character in the hands of the REIT for purposes of the gross income and
asset tests applicable to REITs as described below. Thus, the Company's
proportionate share of the assets, liabilities and items of income of any
partnership will be treated as assets, liabilities and items of income of the
Company for purposes of applying the REIT requirements described below. There
can be no assurance, however, that any partnerships will be organized or
operated in a manner that will enable the Company to continue to satisfy the
REIT requirements of the Code.

Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from "prohibited
transactions," i.e., certain sales of property held primarily for sale to
customers in the ordinary course of business) for each taxable year must be
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in
certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived from such real property investments, and from other dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). Third, short-term gain from the sale or
other disposition of stock or securities, gain from certain sales of property
held primarily for sale, and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must, in the aggregate, represent less than 30%
of the Company's gross income for each taxable year.

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income tests described above only if several conditions
are met, including the following. First, if rent attributable to personal
property, leased in connection with real property, is greater than 15% of the
total rent received under any particular lease, then all of the rent
attributable to such personal property will not qualify as rents from real
property. The determination of whether an item of property constitutes real
property or personal property under the REIT provisions of the Code is subject
to both legal and factual considerations and, as such, is subject to differing
interpretations. Counsel has advised the Company with respect to the legal
considerations underlying such determination. After consulting with counsel
and considering such advice, the Company has reviewed its properties and has
determined that rents attributable to personal property do not exceed 15% of
the total rent with respect to any particular lease. Due to the specialized
nature of the Company's properties, however, there can be no assurance that
the IRS will not assert that the rent attributable to personal property with
respect to a particular lease is greater than 15% of the total rent with
respect to such lease. If the IRS were successful, and the amount of such non-
qualifying income, together with other non-qualifying income, exceeds 5% of
the

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Company's taxable income, the Company may fail to qualify as a REIT. See "Risk
Factors--Adverse Consequences of Failure to Qualify as a REIT."

In addition, rents received by the Company will not qualify as rents from
real property of the Company if an owner of 10% or more of the Company
directly or constructively owns 10% or more in such tenant (a "Related
Tenant"). Moreover, an amount received or accrued will not qualify as rents
from real property (or as interest income) if it is based in whole or part of
the income or profits of any person. Rent or interest will not be
disqualified, however, solely by reason of being based on a fixed percentage
or percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" from which the REIT derives no
revenue. However, the Company (or its affiliates) is permitted to, and does
directly perform services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant of the property. The Company regularly
attempts to monitor such requirements. There can be no assurance, however,
that the Company will not realize income from a Related Tenant that does not
qualify as "rents from real property."

The Company will provide certain services with respect to the Properties and
any newly acquired Properties. The Company believes that the services provided
by the Company with respect to the Properties are usually and customarily
rendered in connection with the rental of space occupancy only, and therefore
the provision of such services will not cause the rents received with respect
to the Properties to fail to qualify as rents from real property for purposes
of the 75% and the 95% gross income tests.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests (though not the 30% gross income test) for any taxable year, it may
nevertheless qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions will be generally
available if the Company's failure" to meet such tests was due to reasonable
cause and not due to willful neglect, the Company attaches a schedule of the
sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled
to the benefit of these relief provisions. If these relief provisions are
inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in "--General," even
where these relief provisions apply, a tax is imposed with respect to the
excess net income.

Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and U.S. government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of
the investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the
Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities.

The Company expects that substantially all of its assets will be real estate
assets. In addition, the Company does not expect that the value of any
security of any one entity would ever exceed 5% of the Company's total assets,
and the Company does not expect to own more than 10% of any one issuer's
voting securities.

The Company intends to monitor closely the purchase, holding and disposition
of its assets in order to comply with the REIT asset tests. In particular, the
Company intends to limit and diversify its ownership of any assets not
qualifying as real estate assets to less than 25% of the value of the
Company's assets and to less than (i) 5%, by value, of any single issuer and
(ii) 10% of the outstanding voting securities of any one issuer. If it is
anticipated that these limits would be exceeded, the Company intends to take
appropriate measures, including the disposition of non-qualifying assets, to
avoid exceeding such limits.

QRS is a wholly owned corporate subsidiary of the Company organized and
operated as a "qualified REIT subsidiary" within the meaning of the Code.
Qualified REIT subsidiaries are not treated as separate entities from

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their parent REIT for federal income tax purposes. Instead, all assets,
liabilities and items of income, deduction and credit of a qualified REIT
subsidiary are treated as assets, liabilities and items of the Company. A
qualified REIT subsidiary therefore will not be subject to federal corporate
income taxation, although it may be subject to state or local taxation. In
addition, the Company's ownership of the voting stock of a qualified REIT
subsidiary does not violate the general restriction against ownership of more
than 10% of the voting securities of any issuer.

Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (i) the sum of (a) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (b) 95% of the net
income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid with or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its "REIT taxable income,"
as adjusted, it will be subject to tax thereon at the capital gains or
ordinary corporate tax rates, as the case may be. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (1)
85% of its REIT ordinary income for such year, (2) 95% of its REIT capital
gain income for such year, and (3) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company
believes that it has made, and intends to make, timely distributions
sufficient to satisfy this annual distribution requirement.

It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable
distributions of property.

Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest based on the amount of
any deduction taken for deficiency dividends.

Absence of Earnings and Profits. The Company, in order to qualify as a REIT,
must not have accumulated earnings and profits attributable to any non-REIT
years. A REIT has until the close of its first taxable year in which it has
non-REIT earnings and profits to distribute any such accumulated earnings and
profits. Unless the "deficiency dividend" procedures described above apply and
the Company complies with those procedures, failure to distribute such
accumulated earnings and profits would result in the disqualification of the
Company as a REIT. The Company believes that the Company had no accumulated
earnings and profits as of December 31, 1995. The determination of accumulated
earnings and profits, however, depends upon a number of factual matters
related to the activities and operations of the Company during its entire
corporate existence and is subject to review and challenge by the IRS. There
can be no assurance that the IRS will not examine the tax returns of the
Company for prior years and propose adjustments to increase its taxable
income. In this regard, the IRS can consider all taxable years of the Company
as open for review for purposes of determining the amount of such earnings and
profits.

Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, and certain relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to stockholders
in any year in which the Company fails to qualify will not be deductible by
the Company nor will they be required to be made under the Code. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate

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distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also
be disqualified from taxation as a REIT for the four taxable years following
the year during which qualification was lost. It is not possible to state
whether in all circumstances the Company would be entitled to such statutory
relief. In addition, a recent federal budget proposal contains language which,
if enacted in its present form, would result in the immediate taxation of all
gain inherent in a C corporation's assets upon an election by the corporation
to become a REIT, and thus could effectively preclude the Company from re-
electing REIT status following a termination of its REIT qualification.

TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS

General. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable domestic stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by them as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed the Company's actual net capital gain
for the taxable year) without regard to the period for which the stockholder
has held its stock. However, corporate stockholders may be required to treat
up to 18% of certain capital gain dividends as ordinary income.

Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a stockholder's shares, they will be included in income
as long-term capital gain (or short-term capital gain if the shares have been
held for one year or less). In addition, any dividend declared by the Company
in October, November or December of any year and payable to a stockholder of
record on a specified date in any such month shall be treated as both paid by
the Company and received by the stockholder on December 31 of such year,
provided that the dividend is actually paid by the Company during January of
the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of the Company.

Upon a sale or other disposition of the Common Stock, a stockholder will
generally recognize a capital gain or loss in an amount equal to the
difference between the amount realized and the stockholder's adjusted basis in
such shares, which gain or loss will be long-term if such shares have been
held for more than one year. To the extent of any long-term capital gain
dividends received by a stockholder, any loss on the sale or other disposition
of Common Stock held by such stockholder for six months or less will generally
be treated as a long-term capital loss.

TAXATION OF TAX-EXEMPT STOCKHOLDERS

Based upon a published ruling by the IRS, distributions by the Company to a
stockholder that is a tax-exempt entity will not constitute "unrelated
business taxable income" ("UBTI"), provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code and the shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity.

Notwithstanding the preceding paragraph, however, a portion of the dividends
paid by the Company may be treated as UBTI to certain domestic private pension
trusts if the Company is treated as a "pension-held REIT." The Company
believes that it is not, and does not expect to become, a "pension-held REIT."
If the Company were to become a pension-held REIT, these rules generally would
only apply to certain pension trusts that hold more than 10% of the Company's
stock.

TAXATION OF NON-U.S. HOLDERS

The following is a discussion of certain anticipated U.S. federal income and
estate tax consequences of the ownership and disposition of the Company's
Common Stock applicable to Non-U.S. Holders of such stock. A "Non-U.S. Holder"
is any person other than (i) a citizen or resident of the U.S., (ii) a
corporation or partnership created or organized in the U.S. or under the laws
of the U.S. or of any state thereof, (iii) an estate

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whose income is includable in gross income for U.S. federal income tax
purposes regardless of its source, or (iv) a trust whose administration is
subject to the primary supervision of a U.S. court and which has one or more
U.S. fiduciaries who have the authority to control all substantial decisions
of the trust. The discussion is based on current law and is for general
information only. The discussion addresses only certain and not all aspects of
U.S. federal income and estate taxation.

Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of the Company's earnings and profits which are not attributable
to capital gains of the Company and which are not effectively connected with a
U.S. trade or business of the Non-U.S. Holder will be subject to U.S.
withholding tax at the rate of 30% (unless reduced by treaty). In general,
Non-U.S. Holders will not be considered engaged in a U.S. trade or business
solely as a result of their ownership of stock of the Company. In cases where
the dividend income from a Non-U.S. Holder's investment in stock of the
Company is (or is treated as) effectively connected with the Non-U.S. Holder's
conduct of a U.S. trade or business, the Non-U.S. Holder generally will be
subject to U.S. tax at graduated rates, in the same manner as U.S.
stockholders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax in the case of a Non-U.S. Holder that is a
foreign corporation).

Non-Dividend Distributions. Unless the Company's stock constitutes a USRPI
(as defined below), distributions by the Company which are not dividends out
of the earnings and profits of the Company will not be subject to U.S. income
or withholding tax. If it cannot be determined at the time a distribution is
made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company. If the Company's stock
constitutes a USRPI, such distribution shall be subject to 10% withholding tax
and may be subject to taxation under FIRPTA (as defined below).

Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of U.S. Real
Property Interests ("USRPIs") such as the properties beneficially owned by the
Company ("'USRPI Capital Gains"), will be considered effectively connected
with a U.S. trade or business of the Non-U.S. Holder and subject to U.S.
income tax at the rate applicable to U.S. individuals or corporations, without
regard to whether such distribution is designated as a capital gain dividend.
In addition, the Company will be required to withhold tax equal to 35% of the
amount of dividends to the extent such dividends constitute USRPI Capital
Gains. Distributions subject to FIRPTA may also be subject to a 30% branch
profits tax in the hands of a foreign corporate stockholder that is not
entitled to treaty exemption.

Disposition of Stock of the Company. Unless the Company's stock constitutes
a USRPI, a sale of such stock by a Non-U.S. Holder generally will not be
subject to U.S. taxation under FIRPTA. The stock will not constitute a USRPI
if the Company is a "domestically controlled REIT." A domestically controlled
REIT is a REIT in which, at all times during a specified testing period, less
than 50% in value of its shares is held directly or indirectly by Non-U.S.
Holders. The Company believes that it is, and it expects to continue to be a
domestically controlled REIT, and therefore that the sale of the Company's
stock will not be subject to taxation under FIRPTA. Because the Company's
stock will be publicly traded, however, no assurance can be given that the
Company will continue to be a domestically controlled REIT.

If the Company does not constitute a domestically controlled REIT, a Non-
U.S. Holder's sale of stock generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market (e.g., the NYSE, on which the Company's Common Stock will be listed)
and (ii) the selling Non-U.S. Holder held 5% or less of the Company's
outstanding stock at all times during a specified testing period.

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If gain on the sale of stock of the Company were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of the stock could be required to
withhold 10% of the purchase price and remit such amount to the IRS.

Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in the stock of the Company is effectively connected with a U.S.
trade or business conducted by such Non-U.S. Holder, the Non-U.S. Holder will
be subject to the same treatment as a U.S. stockholder with respect to such
gain, or (ii) if the Non-U.S. Holder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year and has a
"tax home" in the United States, the nonresident alien individual will be
subject to a 30% tax on the individual's capital gain.

Estate Tax. Stock of the Company owned or treated as owned by an individual
who is not a citizen or resident (as specially defined for U.S. federal estate
tax purposes) of the United States at the time of death will be includable in
the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may
be subject to U.S. federal estate tax on the property includable in the estate
for U.S. federal estate tax purposes.

Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-U.S. Holder the amount of dividends
(including any capital gain dividends) paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these returns may also be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides.

U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required
under the U.S. information reporting requirements) and information reporting
will generally not apply to dividends (including any capital gain dividends)
paid on stock of the Company to a Non-U.S. Holder at an address outside the
United States.

The payment of the proceeds from the disposition of stock of the Company to
or through a U.S. office of a broker will be subject to information reporting
and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, its status as a Non-U.S. Holder, or otherwise
establishes an exemption. The payment of the proceeds from the disposition of
stock to or through a non-U.S. office of a non-U.S. broker generally will not
be subject to backup withholding and information reporting.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.

These information reporting and backup withholding rules are under review by
the U.S. Treasury and their application to the Common Stock could be changed
by future regulations. On April 15, 1996, the IRS issued proposed Treasury
Regulations concerning the withholding of tax and reporting for certain
amounts paid to non-resident individuals and foreign corporations. The
proposed Treasury Regulations, if adopted in their present form, would be
effective for payments made after December 31, 1997. Prospective purchasers
should consult their tax advisors concerning the potential adoption of such
proposed Treasury Regulations and the potential effect on their ownership of
Common Stock.

OTHER TAX CONSEQUENCES

Possible Legislative or Other Actions Affecting Tax
Consequences. Prospective investors should recognize that the present federal
income tax treatment of an investment in the Company may be modified by
legislative,

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<PAGE>

judicial or administrative action at any time, and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department, resulting
in revisions of regulations and revised interpretations of established
concepts as well as statutory changes. For example, a recent federal budget
proposal contains language which, if enacted in its present form, would result
in the immediate taxation of all gain inherent in a C corporation's assets
upon an election by the corporation to become a REIT, and thus could
effectively preclude the Company from re-electing REIT status following a
termination of its REIT qualification. Revisions in federal tax laws and
interpretations thereof could adversely affect the tax consequences of an
investment in the Company.

State and Local Taxes. The Company and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective
stockholders should consult their tax advisors regarding the effect of state
and local tax laws on an investment in the Company.

107
<PAGE>

UNDERWRITING

Subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom PaineWebber,
Lehman Brothers Inc., Smith Barney Inc. and EVEREN Securities, Inc. are acting
as representatives of the Underwriters (the "Representatives"), has severally
agreed to purchase from the Company, the respective number of shares of Common
Stock set forth opposite their names. Pursuant to the terms of the
Underwriting Agreement, the Underwriters are obligated to purchase all such
shares of Common Stock if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
------------ ------------
<S> <C>
PaineWebber Incorporated........................................ 1,312,500
Lehman Brothers Inc............................................. 1,312,500
Smith Barney Inc................................................ 1,312,500
EVEREN Securities, Inc.......................................... 1,312,500
Alex. Brown & Sons Incorporated................................. 100,000
Dillon, Read & Co. Inc. ........................................ 100,000
Goldman, Sachs & Co. ........................................... 100,000
Hambrecht & Quist LLC........................................... 100,000
Legg Mason Wood Walker, Incorporated ........................... 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............. 100,000
Montgomery Securities........................................... 100,000
Morgan Stanley & Co. Incorporated .............................. 100,000
Oppenheimer & Co., Inc. ........................................ 100,000
Robertson, Stephens & Company LLC .............................. 100,000
UBS Securities LLC.............................................. 100,000
Fahnestock & Co. Inc. .......................................... 50,000
Gordon, Haskett Capital Corporation............................. 50,000
Edward D. Jones & Co. .......................................... 50,000
Ladenburg, Thalmann & Co. Inc. ................................. 50,000
Pennsylvania Merchant Group Ltd. ............................... 50,000
Torrey Pines Securities, Inc. .................................. 50,000
Tucker Anthony Incorporated..................................... 50,000
Unterberg Harris................................................ 50,000
---------
Total......................................................... 6,750,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to offer the Shares to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $0.77 per Share. The Underwriters may
allow, and such dealers may re-allow, a discount not in excess of $0.10 per
Share on sales to certain other brokers and dealers. After the Offering, the
public offering price, concession and discount may be changed.

At the request of the Company, the Underwriters have reserved up to 250,000
shares of Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.

The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 1,012,500 additional
shares of Common Stock to cover over-allotments, if any, at

108
<PAGE>

the initial public offering price, less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased
by it shown in the foregoing table bears to the number of Shares initially
offered hereby.

In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
federal securities laws, or to contribute to payments that the Underwriters
may be required to make in respect thereof.

The Underwriters do not intend to confirm sales of Shares to any account
over which they exercise discretionary authority.

Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. The initial public offering price has been
determined through negotiations among the Company and the Representatives.
Among the factors considered in such negotiations, in addition to prevailing
market conditions, were dividend yields and financial characteristics of
publicly traded REITs that the Company and the Representatives believe to be
comparable to the Company, the expected results of operations of the Company
and the Properties, estimates of the future business potential and earnings
prospects of the Company as a whole, the current state of the real estate
market in the Company's target markets and the economy as a whole.

The Common Stock has been approved for listing on the NYSE, subject to
official notice of issuance, under the symbol "ARE." In order to meet one of
the requirements for listing the shares of Common Stock on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares of Common
Stock to a minimum of 2,000 beneficial holders.

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing shares of Common Stock in the
open market. The Representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.

The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the

109
<PAGE>

Underwriters' short position or to stabilize the price of the Common Stock,
they may reclaim the amount of the selling concession from the Underwriters
and selling group members who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security before the distribution is
completed.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above might have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.

The Company has agreed to pay PaineWebber an advisory fee equal to 1.0% of
the gross proceeds of the Offering (approximately $1.4 million) for structural
and advisory services. In addition, affiliates of PaineWebber will receive
$44.4 million of the net proceeds as repayment of amounts outstanding under
the PaineWebber Facility and will receive approximately $58.9 million as
consideration for the acquisition of the Acquisition LLC. See "Use of
Proceeds" and "Formation and Structure" for a description of the payments to
be received by affiliates of PaineWebber and the manner in which the purchase
price for the Acquisition LLC membership interests has been calculated.

In connection with the PaineWebber Facility and the LLC Agreement, the
Company granted PaineWebber the right, for a three year period, subject to
certain exceptions, to act as financial advisor and book running lead manager
in connection with an initial public offering of the Company or Holdings. In
addition, the Company agreed, subject to certain conditions, to use its
reasonable best efforts to cause PaineWebber to be selected as the exclusive
financial intermediary or principal, as applicable, in connection with certain
private financings by the Company or Holdings during such period and to pay an
affiliate of PaineWebber a fee of up to $1,500,000 if PaineWebber is not so
selected. The foregoing rights will terminate upon consummation of the
Offering.

Certain of the Underwriters, including the Representatives, have in the past
performed and may continue to perform investment banking, broker-dealer and
financial advisory services for the Company and have received customary
compensation therefor.

Although the Conduct Rules of the NASD exempt REITs from the conflict of
interest provisions thereof, because affiliates of PaineWebber will receive
more than 10% of the net proceeds of the Offering as described above, the
Underwriters have determined to conduct the Offering in accordance with the
applicable provisions of Rules 2710(c)(8) and 2720(c)(3) of the Conduct Rules.
In accordance with these requirements, Lehman Brothers Inc. (the "Independent
Underwriter") is assuming the responsibilities of acting as "qualified
independent underwriter" and has recommended the maximum initial public
offering price for the Shares in compliance with the requirements of the
Conduct Rules. In connection with the Offering, the Independent Underwriter
has performed due diligence investigations and has reviewed and participated
in the preparation of this Prospectus and the Registration Statement. The
initial public offering price of the Shares is no higher than the price
recommended by the Independent Underwriter.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom LLP, Los Angeles, California, and certain legal matters
with respect to Maryland law, including the validity of the issuance of the
Shares offered hereby, will be passed upon for the Company by Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland. Certain legal matters will be passed
upon for the Underwriters by Goodwin,

110
<PAGE>

Procter & Hoar llp, Boston, Massachusetts. Goodwin, Procter & Hoar llp will
rely on the legal opinion of Ballard Spahr Andrews & Ingersoll with respect to
certain matters relating to Maryland law. Skadden, Arps, Slate, Meagher & Flom
LLP has from time to time represented certain of the Underwriters in
connection with unrelated legal matters. A partner at Skadden, Arps, Slate,
Meagher & Flom LLP owns 9,465 shares of Holdings common stock (representing
approximately 9.0% of the outstanding shares of Holdings common stock),
13,333 shares of Holdings Series A Preferred Stock and 1,042 shares of
Holdings Series B Preferred Stock. In addition, such partner will receive
$197,500 from Holdings in connection with the Offering as repayment of certain
loans. See "Certain Transactions."

EXPERTS

The consolidated financial statements of Alexandria Real Estate Equities,
Inc. at December 31, 1996 and 1995, and for each of the two years in the
period ended December 31, 1996, and for the period October 27, 1994
(inception) through December 31, 1994, and the statements of revenue and
certain expenses for the year ending December 31, 1995, of 1413 Research
Boulevard; 300 and 401 Professional Drive; 25, 35, and 45 W. Watkins Mill
Road; 1311, 1401 and 1431 Harbor Bay Parkway; the statement of revenue and
certain expenses of 1550 East Gude Drive for the year ending December 31,
1996; and the financial statements of PW Acquisitions I, LLC at March 31,
1997, and for the quarter ended March 31, 1997, all appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.

Certain market information included in this Prospectus and Registration
Statement has been prepared by Rosen Consulting Group and is set forth in a
report dated May 5, 1997 (the "RCG Study"). Certain information from the RCG
Study is included herein in reliance upon the authority of such firm as an
expert in, among other things, urban economics and real estate market
analysis.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Shares offered pursuant to this Prospectus.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the
exhibits and financial statement schedules thereto. For further information
with respect to the Company and the Shares, reference is made to the
Registration Statement and such exhibits and financial statement schedules,
copies of which may be examined without charge at or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and will also
be available for inspection and copying at the regional offices of the
Commission located at 13th Floor, 7 World Trade Center, New York, New York
10048, and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. The Commission maintains a Website at http:/www.sec.gov, and reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission (including the Company) can be
obtained from that site.

Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the full text of such contract or document.

The Company will be required to file reports and other information with the
Commission pursuant to the Exchange Act. In addition to applicable legal or
NYSE requirements, if any, holders of shares of Common Stock will receive
annual reports containing audited financial statements with a report thereon
by the Company's independent certified public accountants.

111
<PAGE>

GLOSSARY

As used in this Prospectus, the capitalized and other terms listed below
have the meanings indicated.

"401(k) Plan" means the Company's 401(k) Plan.

"1940 Act" means the Investment Company Act of 1940, as amended.

"1994 Plan" means the Holdings' Amended and Restated 1994 Stock Option Plan.

"1994 Acquired Properties" means the four Properties acquired by the Company
in 1994.

"1996 Acquired Properties" means the eight Properties acquired by the
Company in 1996.

"1996 Plan" means the Company's Amended & Restated 1996 Stock Option Plan.

"1997 Stock Option Plan" means the Company's 1997 Stock Award and Incentive
Plan.

"ACMs" means asbestos-containing materials.

"Acquisition LLC" means ARE Acquisitions, LLC (formerly, PW Acquisitions I,
LLC).

"Acquisition LLC Properties" means 1550 East Gude Drive, Rockville,
Maryland, 1330 Piccard Drive, Rockville, Maryland and 14225 Newbrook Drive,
Chantilly, Virginia.

"ADA" means the Americans with Disabilities Act of 1990, as amended.

"AEW" means AEW Partners II, L.P. and certain of its affiliates.

"Affiliate" of a person means a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with such person.

"Alexandria" means Alexandria Real Estate Equities, Inc., a Maryland
corporation.

"Annualized Base Rent" means the annualized fixed base rental amount in
effect as of the date presented paid by tenants under the terms of their
leases computed on a straight-line basis in accordance with GAAP. In the case
of triple net leases, Annualized Base Rent does not include real estate taxes
and insurance, common area and other operating expenses, substantially all of
which are borne by the tenants.

"Annualized Net Effective Rent" means the Annualized Base Rent in effect as
of April 30, 1997, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized tenant
improvements and leasing commissions.

"Bank of America" means the Bank of America National Trust and Savings
Association.

"Bankruptcy Code" means Title 11 of the United States Code.

"Built-in Gain" means the excess of the fair market value of an asset as of
the beginning of the Recognition Period over the Company's adjusted basis in
such asset as of the beginning of the Recognition Period.

"Bylaws" means the Amended and Restated Bylaws of Alexandria.

"Charter" means the Articles of Amendment and Restatement of Alexandria
filed prior to the consummation of the Offering.

112
<PAGE>

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the Securities and Exchange Commission.

"Common Stock" means the common stock, par value $.01 per share, of
Alexandria.

"Company" means Alexandria, QRS, Harbor Bay, LLC and the Acquisition LLC,
unless the context otherwise requires.

"Continuing Investors" means, collectively, Holdings, the Company's
officers, directors and employees and AEW.

"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.

"Control Shares" means voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror or in respect
of which the acquiror is able to exercise or direct the exercise of voting
power (except solely by virtue of revocable proxy), would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority or more of all
voting power, but does not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder
approval.

"CPI" means a consumer price index.

"Credit Facility" means the revolving credit facility for up to $150
million, for which the Company has received a commitment from the Bank of
America.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"FDA" means the U.S. Food and Drug Administration.

"FFO" means Funds from Operations as defined in the White Paper as net
income (loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures.

"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.

"Formation Transactions" means the transactions described in "Formation and
Structure."

"GAAP" means generally accepted accounting principles as from time to time
in effect.

"Harbor Bay, LLC" means ARE-1431 Harbor Bay, LLC, a special-purpose limited
liability company of which Alexandria holds a 99% non-managing interest and
QRS holds a 1% managing interest.

"Holdings" means Health Science Properties Holding Corporation, a Maryland
corporation.

"Holdings Stock Options" means options granted under Holdings 1994 Stock
Option Plan, as amended, or Holdings 1994 Stock Option Plan for Non-Employee
Directors, as amended.

"HVAC" means heating, ventilation and air conditioning.

"Independent Underwriter" means Lehman Brothers Inc., who will act as
"qualified independent underwriter" and will recommend the maximum initial
public offering price for the Shares.

113
<PAGE>

"Interested Stockholder" means any person who beneficially owns 10% or more
of the voting power of a corporation's shares or an affiliate of a corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the then-
outstanding voting stock of the corporation.

"IRS" means the Internal Revenue Service.

"Life Science Facilities" means office buildings containing scientific
research and development laboratories and other improvements that are generic
to tenants operating in the Life Science Industry.

"Life Science Industry" means the industry comprised of pharmaceutical,
biotechnology, diagnostic and personal care products companies, major
scientific research institutions and related government agencies.

"LLC Agreement" means the Agreement for Sale and Purchase of Membership
Interests entered into between certain affiliates of PaineWebber and the
Company on January 13, 1997, as amended.

"MGCL" means the Maryland General Corporation Law, as amended.

"Named Executive Officers" means the Company's Chief Executive Officer and
the four other most highly compensated executive officers of the Company.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"NIH" means the National Institutes of Health.

"Non-U.S. Holder" means any person other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in
the United States or under the laws of the United States or of any state
thereof, (iii) an estate whose income is includable in gross income for U.S.
federal income tax purposes regardless of its source, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust.

"NYSE" means the New York Stock Exchange.

"Offering" means the offering of Shares hereby.

"Ownership Limit" means the direct or constructive ownership of shares of
capital stock representing more than 9.8% of the combined total value of
outstanding shares of the Company's capital stock by any person.

"PaineWebber" means PaineWebber Incorporated, the lead managing Underwriter
of the Offering.

"PaineWebber Facility" means the Company's acquisition facility with certain
affiliates of PaineWebber entered into on September 9, 1996, as amended.

"PhRMA" means Pharmaceutical Research and Manufacturers of America.

"Preferred Stock" means preferred stock, par value $.01 per share, of the
Company.

"Prohibited Owner" means a person who beneficially or constructively owns
shares of stock of the Company in excess or in violation of the transfer or
ownership limitations.

"Properties" means the 15 Properties the Company will own upon consummation
of the Offering and the Formation Transactions.

"PW Affiliates" means PaineWebber Real Estate Holdings Inc. and PW Realty
Partners, LLC.

114
<PAGE>

"QRS" means ARE-QRS Corp., a Maryland corporation, a wholly owned subsidiary
of Alexandria.

"RCG Study" means the market study prepared by the Rosen Consulting Group
dated May 5, 1997.

"Recognition Period" means the 10-year period beginning on the first day of
the first taxable year for which the Company qualified as a REIT.

"REIT" means a real estate investment trust.

"Registration Statement" means the Registration Statement of which this
Prospectus forms a part.

"Related Tenant" means an owner of 10% or more of the Company who directly
or constructively owns 10% or more in a tenant.

"Representatives" means PaineWebber, Lehman Brothers Inc., Smith Barney Inc.
and EVEREN Securities, Inc.

"Restricted Securities" means the Restricted Shares and shares of Common
Stock that will be restricted securities under Rule 144.

"Restricted Shares" means shares of Common Stock held by the Continuing
Investors upon consummation of the Offering and the Formation Transactions.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"Securities Act" means the Securities Act of 1933, as amended.

"Series T Preferred Stock" means the Series T Preferred Stock, par value
$.01 per share, of Alexandria.

"Series U Preferred Stock" means the Series U Preferred Stock, par value
$.01 per share, of Alexandria.

"Series V Preferred Stock" means the Series V Preferred Stock, par value
$.01 per share, of Alexandria.

"Shares" means the shares of Common Stock to be offered and sold in the
Offering.

"Stock Split" means the split of each share of outstanding Common Stock into
1,765.923 shares of Common Stock in connection with the Offering.

"UBTI" means unrelated business taxable income.

"Underwriters" means the Underwriters named in this Prospectus for whom
PaineWebber, Lehman Brothers Inc., Smith Barney Inc. and EVEREN Securities,
Inc. are acting as Representatives.

"Underwriting Agreement" means the Underwriting Agreement to be entered into
between the Company and the Underwriters.

"USRPIs" means U.S. Real Property Interests.

"USRPI Capital Gains" means gains from dispositions of USRPIs, such as the
properties beneficially owned by the Company.

"White Paper" means the White Paper on FFO approved by the Board of
Governors of NAREIT in March 1995.

115
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Unaudited Pro Forma Condensed Consolidated Financial Statements.......... F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1997................................................................... F-3
Unaudited Pro Forma Condensed Consolidated Income Statement for the
Three Months Ended March 31, 1997...................................... F-4
Unaudited Pro Forma Condensed Consolidated Income Statement for the Year
Ended December 31, 1996................................................ F-5
Adjustments to the Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................................. F-6
Historical Consolidated Financial Statements
Report of Independent Auditors.......................................... F-11
Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and
December 31, 1996 and 1995............................................. F-12
Consolidated Statements of Operations for the Three Months Ended March
31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996
and 1995 and the period October 27, 1994 (inception) through December
31, 1994............................................................... F-13
Consolidated Statements of Stockholders' Equity for the Three Months
Ended March 31, 1997 (Unaudited) and for the Years Ended December 31,
1996 and 1995 and the period October 27, 1994 (inception) through
December 31, 1994...................................................... F-14
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996
and 1995 and the period October 27, 1994 (inception) through December
31, 1994............................................................... F-15
Notes to Consolidated Financial Statements.............................. F-16
Schedule III--Rental Properties and Accumulated Depreciation............ F-28

1413 RESEARCH BLVD.
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-29
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to July 2, 1996 (Unaudited) and for the Year Ended December 31, 1995... F-30
Notes to Statement of Revenue and Certain Expenses...................... F-31

300 AND 401 PROFESSIONAL DRIVE
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-32
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to September 10, 1996 (Unaudited) and for the Year Ended December 31,
1995................................................................... F-33
Notes to Statement of Revenue and Certain Expenses...................... F-34

25, 35 AND 45 W. WATKINS MILL ROAD
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-35
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to October 18, 1996 (Unaudited) and for the Year Ended December 31,
1995................................................................... F-36
Notes to Statement of Revenue and Certain Expenses...................... F-37

1311, 1401 AND 1431 HARBOR BAY PARKWAY
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-38
Statement of Revenue and Certain Expenses for the Period January 1, 1996
to December 12, 1996 (Unaudited) and for the Year Ended December 31,
1995................................................................... F-39
Notes to Statement of Revenue and Certain Expenses...................... F-40

1550 EAST GUDE DRIVE
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-41
Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................... F-42
Notes to Statement of Revenue and Certain Expenses...................... F-43

PW ACQUISITIONS I, LLC
Report of Independent Auditors.......................................... F-44
Balance Sheet as of March 31, 1997...................................... F-45
Income Statement and Changes in Members' Capital for the Period January
13, 1997 (commencement of operations) to March 31, 1997................ F-46
Statement of Cash Flows for the Period January 13, 1997 (commencement of
operations) to March 31, 1997.......................................... F-47
Notes to Financial Statements........................................... F-48
Schedule III--Rental Properties and Accumulated Depreciation............ F-51
</TABLE>
- -------
Note:

Financial statements have not been presented for 1102 and 1124 Columbia
Street, 14225 Newbrook Drive and 1330 Piccard Drive, each of which was owned,
occupied and operated by the current major tenant prior to acquisition by the
Company or the Acquisition LLC. Triple-net leases were executed in connection
with the acquisition of these properties, and historical operating expenses
(such as insurance, utilities and repairs and maintenance) cannot be
meaningfully compared to current operations.

F-1
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.
(FORMERLY KNOWN AS HEALTH SCIENCE PROPERTIES, INC.)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated balance sheet as of March 31,
1997 is presented as if the Offering, the application of the net proceeds
thereof and the transactions described in "Formation and Structure" all had
occurred on March 31, 1997.

The unaudited pro forma condensed consolidated income statements for the
three months ended March 31, 1997, and for the year ended December 31, 1996
are presented as if the Offering, the application of the net proceeds thereof,
the transactions described in "Formation and Structure" (including the
acquisition of PW Acquisitions I, LLC (the "Acquisition LLC") and the
acquisition of the eight Properties acquired during 1996 (the "1996 Acquired
Properties") all had occurred on January 1, 1996 for the pro forma income
statements. No pro forma revenues or expenses have been included in the pro
forma income statements for 1102 and 1124 Columbia Street (acquired by the
Company on May 31, 1996), 14225 Newbrook Drive (acquired by the Acquisition
LLC on January 13, 1997) and 1330 Piccard Drive (acquired by the Acquisition
LLC on January 15, 1997) for periods prior to their purchase because each was
owner occupied prior to acquisition and as a result does not have historical
operating results as a rental property.

The pro forma condensed consolidated financial statements are not
necessarily indicative of what the Company's financial position or results of
operations would have been assuming consummation of the transactions described
in "Formation and Structure" and the Offering on such date or at the beginning
of the period indicated, nor do they purport to project the Company's
financial position or results of operations at any future date or for any
future period.

F-2
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -------------------------------------------------
ALEXANDRIA PROCEEDS OTHER
REAL ESTATE ACQUISITION FROM THE PRO FORMA COMPANY
EQUITIES, INC. LLC (A) OFFERING (B) ADJUSTMENTS PRO FORMA
-------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Rental properties--net.. $147,315 $ 51,669 $198,984
Cash and cash
equivalents............ 2,750 (58,763) $121,898 $ 15,501 (C) 3,123
(78,262)(D)
(1)(G)
Tenant security deposit
funds and other
restricted cash........ 4,735 302 5,037
Tenant receivables and
deferred rents......... 1,552 123 1,675
Loan fees and costs--
net.................... 2,468 840 (C) 1,262
(2,046)(E)
Leasing commissions--
net.................... 337 337
Other assets............ 2,533 (298) 2,235
-------- -------- -------- -------- --------
Total assets........ $161,690 $ (6,669) $121,600 $(63,968) $212,653
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable... $112,815 $(72,794)(D) $ 55,381
15,360 (C)
Accounts payable and
accrued expenses....... 4,924 $ 66 (382)(D) 4,608
Prepaid rents........... -- 151 151
Tenant security
deposits............... 490 302 792
Unsecured line of
credit................. 2,500 981 (C) 981
(2,500)(D)
Due to Holdings......... 2,300 (2,300)(D) --
Advances from Holdings.. 286 (286)(D) --
-------- -------- -------- -------- --------
Total liabilities... 123,315 519 (61,921) 61,913
Mandatorily redeemable
Series V Preferred
Stock.................. 25,929 (25,929)(F) --
Stockholders' equity
Preferred stock
Undesignated Preferred
Stock................ -- --
Series T 8.5%
Preferred Stock...... 1 (1)(G) --
Series U 8.5%
Preferred Stock...... 110 (110)(G) --
Common Stock............ -- $ 68 16 (F) 104
20 (G)
Additional paid-in
capital................ 15,702 121,532 25,913 (F) 167,004
110 (G)
(20)(G)
3,052 (G)
715 (G)
Accumulated deficit..... (3,367) (7,188) (2,046)(E) (16,368)
(3,052)(G)
(715)(G)
-------- -------- -------- -------- --------
Total stockholders'
equity............. 12,446 (7,188) 121,600 23,882 150,740
-------- -------- -------- -------- --------
Total liabilities
and equity......... $161,690 $ (6,669) $121,600 $(63,968) $212,653
======== ======== ======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
HISTORICAL TOTAL
ALEXANDRIA HISTORICAL OTHER PRO COMPANY
REAL ESTATE ACQUISITION FORMA PRO
EQUITIES, INC. LLC(I) ADJUSTMENTS FORMA
-------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental revenue........ $ 5,175 $1,484 $ 43 (J) $ 6,702
Tenant recoveries..... 1,897 18 1,915
Other................. 89 3 36 (L) 128
--------- ------ ------- ----------
Total revenues...... 7,161 1,505 79 8,745
--------- ------ ------- ----------
Expenses:
Rental properties..... 1,830 58 45 (K) 1,933
General and
administrative ...... 583 142 (M) 725
Special bonus......... 353 353
Stock grant and stock
option compensation.. 394 -- (1) 394
Post retirement
benefit.............. 632 632
Interest ............. 2,509 (1,317)(N) 1,192
Acquisition LLC
financing costs...... -- -- (2) --
Depreciation and
amortization......... 1,003 278 (O) 1,281
--------- ------ ------- ----------
Total expenses...... 7,304 58 (852) 6,510
--------- ------ ------- ----------
Net income (loss)....... $ (143) $1,447 $ 931 $ 2,235
========= ====== ======= ==========
Pro forma shares of
Common Stock
outstanding(P)......... 3,642,131 10,392,131
========= ==========
Net income (loss) per
pro forma share of
Common Stock........... $ (0.04) $ 0.22
========= ==========
Additional pro forma net
income per share
information:
Pro forma earnings per
share reflecting the
pro forma effects of
the Offering and
purchase of the
Acquisition LLC
Properties............. $ 0.19(Q)
==========
</TABLE>
- --------
(1) In connection with the Offering, officers, directors and certain employees
will be granted an aggregate of 152,615 shares of the Company's Common
Stock. In addition, officers, directors and certain employees will receive
options to purchase 57,000 shares of Company Common Stock in substitution
for previously granted Holdings Stock Options. The Company will recognize
an additional $3,767 of compensation expense upon the granting of such
stock and options. This additional expense is not reflected in net income
for any historical or pro forma period set forth above but will be
recognized when the transaction is completed.

(2) In connection with the Offering, the Company will acquire the membership
interests in the Acquisition LLC for $58,857, which exceeds the purchase
price paid by the Acquisition LLC for the Acquisition LLC Properties by
$7,188. This difference will be accounted for as a financing cost and be
recognized when the transaction is completed.

See accompanying notes.

F-4
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------------------
HISTORICAL HISTORICAL OTHER TOTAL
ALEXANDRIA HISTORICAL ACQUISITION PRO COMPANY
REAL ESTATE 1996 ACQUIRED LLC FORMA PRO
EQUITIES, INC. PROPERTIES(H) PROPERTIES(I) ADJUSTMENTS FORMA
-------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenue........ $ 12,941 $5,247 $539 $ 151 (J) $ 18,878
Tenant recoveries..... 4,169 1,387 62 295 (K) 5,913
Other................. 563 4 (109)(L) 458
--------- ------ ---- ------- ----------
Total revenues...... 17,673 6,638 601 337 25,249
--------- ------ ---- ------- ----------
Expenses:
Rental properties..... 4,356 1,917 62 136 (K) 6,471
General and
administrative....... 1,972 928 (M) 2,900
Stock grant
compensation......... -- -- (1) --
Post retirement
benefit.............. 438 438
Interest ............. 6,327 (2,491)(N) 3,836
Acquisition LLC
financing costs...... -- -- (2) --
Depreciation and
amortization......... 2,405 1,116 (O) 3,521
--------- ------ ---- ------- ----------
Total expenses...... 15,498 1,917 62 (311) 17,166
--------- ------ ---- ------- ----------
Net income.............. $ 2,175 $4,721 $539 $ 648 $ 8,083
========= ====== ==== ======= ==========
Pro forma shares of
Common Stock
outstanding(P)......... 3,642,131 10,392,131
========= ==========
Net income per pro forma
share of Common Stock.. $ 0.60 $ 0.78
========= ==========
Additional pro forma net
income per share
information:
Pro forma earnings per
share reflecting the
pro forma effects of
the Offering and the
purchase of the
Acquisition LLC
Properties........... $ 0.39(Q)
==========
</TABLE>
- --------
(1) In connection with the Offering, officers, directors and certain employees
will be granted an aggregate 152,615 shares of the Company's Common Stock.
In addition, officers, directors and certain employees will receive
options to purchase 57,000 shares of Company Common Stock in substitution
for previously granted Holdings Stock Options. The Company will recognize
$4,161 of compensation expense upon the granting of such stock and
options. This expense is not reflected in net income for any historical or
pro forma period set forth above; $394 of stock option compensation
expense was recognized in the three months ended March 31, 1997, and an
additional $3,767 will be recognized when the transaction is completed.
(2) In connection with the Offering, the Company will acquire the membership
interests in the Acquisition LLC for $58,857 which exceeds the purchase
price paid by the Acquisition LLC for the Acquisition LLC Properties by
$7,188. This difference will be accounted for as a financing cost and
recognized when the transaction is completed.

See accompanying notes.

F-5
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSEDCONSOLIDATED FINANCIAL
STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

The adjustments to the Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of March 31, 1997 are as follows:

(A) Acquisition of the three properties owned by the Acquisition LLC (the
"Acquisition LLC Properties") consists of the following:

<TABLE>
<CAPTION>
PROPERTY
--------
<S> <C>
1150 East Gude Drive.............................................. $ 4,897
1330 Piccard Drive................................................ 14,333
14225 Newbrook Drive.............................................. 32,439
-------
$51,669
=======
</TABLE>

The acquisition price reflected differs from the total amount paid by the
Company ($58,857). The difference ($7,188) is treated as a financing cost that
will be recognized when the transaction is completed. Other assets and
liabilities of the Acquisition LLC have been reflected at their book value.

<TABLE>
<S> <C>
(B) Sale of 6,750,000 shares Common Stock in the Offering:
Proceeds from the Offering based on initial price of $20.00 per
share......................................................... $135,000
Costs associated with the Offering............................. (13,102)
--------
121,898
Offering costs paid by Alexandria prior to Offering............ (298)
--------
$121,600
========
Par Value of Common Stock issued, excluding conversion of
Series V preferred stock...................................... 68
Additional paid in capital from proceeds of sale of Common
Stock......................................................... 121,532
--------
$121,600
========
(C) Net proceeds from mortgage financing and line of credit and
related commitment fees
Gross proceeds from new debt................................... $ 15,360
Draw on unsecured line of credit............................... 981
Costs associated with new debt origination..................... (290)
Costs associated with new line of credit....................... (550)
--------
$ 15,501
========
(D) Repayment of certain secured notes payable and Due to Holdings
Payment of certain secured notes payable....................... $(72,794)
Payment of unsecured line of credit............................ (2,500)
Payment Due to Holdings........................................ (2,300)
Payment of advances from Holdings.............................. (286)
Payment of accrued interest.................................... (382)
--------
$(78,262)
========
(E) Write off of unamortized loan fees
</TABLE>

F-6
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<S> <C>
(F) Conversion of mandatorily redeemable Series V Preferred Stock
into 1,659,239 shares of Common Stock
Par Value of Common Stock....................................... $ 16
Additional paid-in-capital...................................... 25,913
-------
$25,929
=======
(G) Redemption of Series T 8.5% Preferred Stock for cash............ $ (1)
Conversion of Series U 8.5% Preferred Stock exchanged for 7,354
shares of the Company's common stock........................... (110)
Stock split of the Company's common stock and grant of the
Company's common stock and issuance of substitute options...... 20
Non-cash compensation expense associated with the issuance of
152,615 shares of fully vested common stock.................... 3,052
Non-cash compensation expense associated with 57,000 stock
options issued in substitution for Holdings Stock Options...... 715
</TABLE>

2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENT

The pro forma adjustments reflected in the Unaudited Pro Forma Condensed
Consolidated Income Statement for the three months ended March 31, 1997 and
for the year ended December 31, 1996 are as follows:

(H) Represents the actual historical results for the 1996 Acquired
Properties from the beginning of the period through the date of
acquisition.

<TABLE>
<CAPTION>
THE 1996 ACQUIRED PROPERTIES
----------------------------------------------------------------------------------
FOR THE PERIOD JANUARY 1, 1996 TO THE DATE OF ACQUISITION
----------------------------------------------------------------------------------
1413 300/401 25/35/45 WEST 1311/1401/1431
1102/1124 RESEARCH PROFESSIONAL WATKINS MILL HARBOR BAY
COLUMBIA STREET BOULEVARD DRIVE ROAD PARKWAY TOTAL
--------------- ------------ ------------------ ---------------- ----------------- ------
<S> <C> <C> <C> <C> <C> <C>
Acquisition Date........ May 31, 1996 July 2, 1996 September 10, 1996 October 18, 1996 December 12, 1996
Revenues:
Rental revenue......... $ -- $ 711 $ 1,096 $ 1,296 $ 2,144 $5,247
Tenant recoveries...... -- 595 350 300 142 1,387
Other.................. -- -- -- -- 4 4
------------ ------------ ------------------ ---------------- ----------------- ------
-- 1,306 1,446 1,596 2,290 6,638
------------ ------------ ------------------ ---------------- ----------------- ------
Expenses:
Rental Properties....... -- 680 350 332 555 1,917
------------ ------------ ------------------ ---------------- ----------------- ------
Net income.............. $ -- $ 626 $ 1,096 $ 1,264 $ 1,735 $4,721
============ ============ ================== ================ ================= ======
</TABLE>

No pro forma adjustment has been made for the period prior to
acquisition for 1102/1124 Columbia Street because the property was
owner occupied prior to its purchase and as a result there are no
historical operating results as a rental property. There was no pro
forma adjustment necessary for the 1996 Acquired Properties for the
three months ended March 31, 1997 because the revenue and expense
related to the properties is included in the historical net income for
the period.

F-7
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(I) Represents the actual historical results of the Acquisition LLC
Properties from the beginning of the period through the date of
acquisition.

<TABLE>
<CAPTION>
THE ACQUISITION LLC PROPERTIES
--------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
14225 NEWBROOK 1550 EAST 1330 PICCARD
DRIVE GUDE DRIVE TOTAL
---------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
Acquisition Date........ January 13, 1997 January 24, 1997 January 15, 1997
Revenues:
Rental revenue......... $ -- $ 539 $ -- $539
Tenant recoveries...... -- 62 -- 62
Other.................. -- -- -- --
---------------- ---------------- ---------------- ----
-- 601 -- 601
---------------- ---------------- ---------------- ----
Expenses:
Rental Properties....... -- 62 -- 62
---------------- ---------------- ---------------- ----
Net income.............. $ -- $ 539 $ -- $539
================ ================ ================ ====
</TABLE>

<TABLE>
<CAPTION>
THE ACQUISITION LLC PROPERTIES
---------------------------------------------------------------
FOR THE PERIOD JANUARY 1, 1997 TO DATE OF ACQUISITION
---------------------------------------------------------------
14225 NEWBROOK 1550 EAST 1330 PICCARD HISTORICAL
DRIVE GUDE DRIVE ACQUISITION LLC TOTAL
-------------------- ----------------- ------------------ --------------- ------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenue......... $ -- $ 34 $ -- $1,450 $1,484
Tenant recoveries...... -- 4 -- 14 18
Other.................. -- -- -- 3 3
------------------ ----------------- ------------------ ------ ------
-- 38 -- 1,467 1,505
------------------ ----------------- ------------------ ------ ------
Expenses:
Rental Properties....... -- 4 -- 54 58
------------------ ----------------- ------------------ ------ ------
Net income.............. $ -- $ 34 $ -- $1,413 $1,447
================== ================= ================== ====== ======
</TABLE>

No pro forma adjustments have been made for 14225 Newbrook Drive and
1330 Piccard Drive for the period prior to acquisition because these
properties were owner occupied prior to purchase and as a result there
are no historical operating results as rental properties.

(J) Increase in rental revenue to adjust the 1996 Acquired Properties and
the Acquisition LLC Properties to straight-line rental revenue for the
pro forma period.

(K) Increase in rental properties expenses (primarily due to insurance) and
tenant recoveries which are directly related to the increase in pro
forma expenses to be recovered in excess of historical amounts.

(L) Increase (decrease) in other income to eliminate non-recurring
construction management fees which would not have been realized by the
Company as a public REIT.

F-8
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, 1997 DECEMBER 31, 1996
-------------------- ------------------
<S> <C> <C>
(M) Increase in general and
administrative expense related
to operations as a public REIT
consisting of increased
salaries and bonuses
(including that of the chief
financial officer), directors
and officers insurance,
investor relations and public
entity and listing fees....... $ 142 $ 928
======= =======
(N) (Decrease) increase in
interest expense
Interest expense due to
repayment of certain mortgage
loans........................ $(1,658) $(3,631)
Interest expense related to
mortgage debt to be incurred
in connection with the
Offering..................... 287 929
Interest expense related to
draw on unsecured line of
credit incurred in connection
with the Offering............ 19 74
Amortization of finance costs
related to the Company's new
credit facility.............. 35 137
------- -------
Net change.................. $(1,317) $(2,491)
======= =======
(O) Increase in depreciation
expense to reflect a full
period of depreciation for the
1996 Acquired Properties and
the Acquisition LLC Properties
utilizing a 40-year useful
life for buildings and a 10-
year useful life for
improvements.................. $ 278 $ 1,116
======= =======
Reconciliation of pro forma de-
preciation:
Historical depreciation of the
Company........................ $ 1,003 $ 2,405
Pro forma depreciation on the
1996 Acquired Properties:
Pro forma depreciation as if
the 1996 Acquired Properties
were purchased on January 1,
1996......................... -- 1,636
Less historical depreciation
recorded by the Company...... -- (645)
------- -------
Net increase in depreciation
expense.................... -- 991
Pro forma depreciation on the
Acquisition LLC Properties as
if the Acquisition LLC
Properties were purchased on
January 1, 1996................ 278 125
------- -------
Total pro forma depreciation.... $ 1,281 $ 3,521
======= =======
</TABLE>

(P) Pro forma shares of Common Stock outstanding on a historical net income
basis include all shares outstanding after giving effect to the conversion
of all series of preferred stock, the 1,765.923 to one share stock split,
the issuance of the stock grants and exercise of the substitute stock
options.

Pro forma shares of Common Stock outstanding on a pro forma basis include
all historical pro forma shares outstanding giving effect to the Offering.
Shares issued for the acquisition of 1330 Piccard Drive and 14225 Newbrook
Drive are assumed to be outstanding from the beginning of the periods
presented. However, no revenues and expenses have been included for these
Properties for the period prior to their acquisition by the Acquisition
LLC.

F-9
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(Q) Additional pro forma net income per share information is included below:

The following table sets forth the pro forma effect of the purchase of the
Acquisition LLC Properties with proceeds from the Offering:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Historical net income of the Company............... $ (143) $ 2,175
Pro forma net income of the Acquisition LLC........ 1,447 539
--------- ---------
Pro forma net income of the Company and the
Acquisition LLC................................... $ 1,304 $ 2,714
========= =========
Common Stock outstanding on a historical basis..... 3,642,131 3,642,131
Common Stock issued in the Offering to purchase the
Acquisition LLC Properties (Note 1)............... 3,267,144 3,267,144
--------- ---------
Common Stock outstanding--pro forma................ 6,909,275 6,909,275
========= =========
Pro forma net income per share reflecting the pro
forma effects of the Offering and purchase of the
Acquisition LLC Properties........................ $ 0.19 $ 0.39
========= =========
</TABLE>
- --------
Note (1) Gives effect to all shares issued to purchase the Acquisition LLC
Properties including the shares to be issued for the acquisition of
1330 Piccard Drive and 14225 Newbrook Drive as if they were
outstanding for the entire period presented. However, no revenues and
expenses have been included for these two Properties for the period
prior to their acquisition by the Acquisition LLC.

F-10
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Alexandria Real Estate Equities, Inc.

We have audited the accompanying consolidated balance sheets of Alexandria
Real Estate Equities, Inc. (formerly known as Health Science Properties, Inc.)
(the "Company") as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years ended December 31, 1996 and 1995 and the period October 27, 1994
(inception) through December 31, 1994. Our audits also included the financial
statement schedule III, rental properties and accumulated depreciation. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as of December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the two years ended December 31,
1996 and 1995 and the period October 27, 1994 (inception) through December 31,
1994, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

Ernst & Young LLP

Los Angeles, California
February 13, 1997,
except for Note 11,
as to which the date is
May 1, 1997

F-11
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA DECEMBER 31,
----------- -----------------------------
MARCH 31, MARCH 31,
1997 1997 1996 1995
----------- ----------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Rental properties, net............. $147,315 $147,315 $146,960 $54,353
Cash and cash equivalents.......... 2,749 2,750 1,696 919
Tenant security deposit funds and
other restricted cash............. 4,735 4,735 5,585 1,214
Tenant receivables and deferred
rent.............................. 1,552 1,552 1,244 830
Loan fees and costs (net of
accumulated amortization of $186,
$186, $131 and $25,
respectively)..................... 2,468 2,468 2,502 206
Leasing commissions (net of
accumulated amortization of $118,
$118, $92 and $26, respectively).. 337 337 353 258
Other assets (net of accumulated
amortization of $117, $117, $103
and $69, respectively)............ 2,533 2,533 2,052 922
-------- -------- -------- -------
Total assets................... $161,689 $161,690 $160,392 $58,702
======== ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable.............. $112,815 $112,815 $113,182 $36,894
Accounts payable and accrued
expenses.......................... 4,924 4,924 3,026 834
Dividends payable.................. -- -- 1,550 --
Tenant security deposits........... 490 490 536 536
Unsecured line of credit........... 2,500 2,500 -- 4,000
Due to Health Science Properties
Holding Corporation............... 2,300 2,300 2,300 --
Advances from Health Science
Properties Holding Corporation.... 286 286 225 105
-------- -------- -------- -------
Total liabilities.............. 123,315 123,315 120,819 42,369
Commitments and contingencies...... -- -- -- --
Manditorily redeemable Series V
cumulative convertible preferred
stock, $0.01 par value, $1,000
stated value per share, 50,000
shares authorized; 27,500 issued
and outstanding................... -- 25,929 25,042 --
Stockholders' equity:
Preferred stock:
Undesignated preferred stock,
$0.01 par value per share,
14,625 shares authorized; no
shares were issued and
outstanding..................... -- -- -- --
Series T 8.5% preferred stock,
$0.01 par value and $100 stated
value per share, 125 shares
authorized; 12 shares issued and
outstanding..................... -- 1 1 1
Series U 8.5% cumulative
convertible preferred stock,
$0.01 par value and $500 stated
value per share, 250 shares
authorized; 220 shares issued
and outstanding................. -- 110 110 --
Common stock, $0.01 par value per
share, 65,000 shares authorized;
1,000 issued and outstanding...... 36 -- -- --
Additional paid-in capital......... 44,516 15,702 16,195 17,128
Accumulated deficit................ (6,178) (3,367) (1,775) (796)
-------- -------- -------- -------
Total stockholders' equity..... 38,374 12,446 14,531 16,333
-------- -------- -------- -------
Total liabilities and
stockholders' equity.......... $161,689 $161,690 $160,392 $58,702
======== ======== ======== =======
</TABLE>

See accompanying notes.

F-12
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THE PERIOD
OCTOBER 27, 1994
THREE MONTHS YEAR ENDED (INCEPTION)
ENDED MARCH 31, DECEMBER 31, THROUGH
------------------ ----------------- DECEMBER 31,
1997 1996 1996 1995 1994
---------- ------ ---------- ------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental................. $ 5,175 $2,090 $ 12,941 $8,020 $ 834
Tenant recoveries...... 1,897 486 4,169 1,699 87
Other.................. 89 34 563 204 90
---------- ------ ---------- ------ ------
7,161 2,610 17,673 9,923 1,011
Expenses:
Rental operations...... 1,830 554 4,356 2,228 252
General and
administrative........ 583 406 1,972 1,608 1,016
Special bonus.......... 353 -- -- -- --
Post retirement
benefit............... 632 -- 438 -- --
Stock option
compensation.......... 394 -- -- -- --
Interest............... 2,509 918 6,327 3,553 328
Depreciation and
amortization.......... 1,003 413 2,405 1,668 63
---------- ------ ---------- ------ ------
7,304 2,291 15,498 9,057 1,659
---------- ------ ---------- ------ ------
Income (loss) from
operations.............. (143) 319 2,175 866 (648)
Charge in lieu of income
taxes................... -- -- -- 105 --
---------- ------ ---------- ------ ------
Net income (loss)........ $ (143) $ 319 $ 2,175 $ 761 $ (648)
========== ====== ========== ====== ======
Net income allocated to
preferred stockholders.. $ 1,577 $ -- $ 1,590 $ -- $ --
========== ====== ========== ====== ======
Net (loss) income
allocated to common
stockholders............ $ (1,720) $ 319 $ 585 $ 761 $ (648)
========== ====== ========== ====== ======
Net income per pro forma
share of Common Stock... $ (0.04) $ 0.60
========== ==========
Pro forma shares of
Common Stock
outstanding............. 3,642,131 3,642,131
========== ==========
Supplemental net income
per share information:
Pro forma net income per
share reflecting the pro
forma effects of the
Offering and repayment
of debt................. $ 0.17 $ 0.71
========== ==========
</TABLE>

See accompanying notes.

F-13
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SERIES T SERIES T SERIES U SERIES U NUMBER OF ADDITIONAL
PREFERRED PREFERRED PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED
SHARES STOCK SHARES STOCK SHARES STOCK CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- --------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 27,
1994................... -- $-- -- $-- -- $-- $ -- $ -- $ --
Issuance of common
stock................. -- -- -- -- 1,000 -- 17,128 -- 17,128
Net loss............... -- -- -- -- -- -- -- (648) (648)
--- ---- --- ---- ----- ---- ------- ------- -------
Balance at December 31,
1994................... -- -- -- -- 1,000 -- 17,128 (648) 16,480
Issuance of Series T
preferred stock....... 12 1 -- -- -- -- -- -- 1
Cash dividends on
common stock.......... -- -- -- -- -- -- -- (909) (909)
Net income............. -- -- -- -- -- -- -- 761 761
--- ---- --- ---- ----- ---- ------- ------- -------
Balance at December 31,
1995................... 12 1 -- -- 1,000 -- 17,128 (796) 16,333
Issuance of Series U
preferred stock....... -- -- 220 110 -- -- -- -- 110
Accretion on Series V
preferred stock....... -- -- -- -- -- -- (933) -- (933)
Cash dividends on
Series T & U preferred
stock................. -- -- -- -- -- -- -- (9) (9)
Cash dividends on
Series V preferred
stock................. -- -- -- -- -- -- -- (656) (656)
Cash dividends on
common stock.......... -- -- -- -- -- -- -- (939) (939)
Dividends declared on
common stock.......... -- -- -- -- -- -- -- (1,550) (1,550)
Net income............. -- -- -- -- -- -- -- 2,175 2,175
--- ---- --- ---- ----- ---- ------- ------- -------
Balance at December 31,
1996................... 12 1 220 110 1,000 -- 16,195 (1,775) 14,531
Accretion on Series V
preferred stock....... -- -- -- -- -- -- (887) -- (887)
Cash dividends on
Series T & U preferred
stock................. -- -- -- -- -- -- -- (2) (2)
Cash dividends on
Series V preferred
stock................. -- -- -- -- -- -- -- (688) (688)
Cash dividends on
common stock.......... -- -- -- -- -- -- -- (759) (759)
Stock option
compensation expense.. -- -- -- -- -- -- 394 -- 394
Net income............. -- -- -- -- -- -- -- (143) (143)
--- ---- --- ---- ----- ---- ------- ------- -------
Balance at March 31,
1997 (unaudited)....... 12 $ 1 220 $110 1,000 $-- $15,702 $(3,367) $12,446
=== ==== === ==== ===== ==== ======= ======= =======
</TABLE>

See accompanying notes.

F-14
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS THE PERIOD
ENDED YEAR ENDED OCTOBER 27, 1994
MARCH 31, DECEMBER 31, (INCEPTION) THROUGH
--------------- ----------------- DECEMBER 31,
1997 1996 1996 1995 1994
------- ------ -------- ------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (143) $ 319 $ 2,175 $ 761 $ (648)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 1,058 419 2,405 1,668 63
Stock option
compensation......... 394 -- -- -- --
Changes in operating
assets and
liabilities:
Tenant security
deposit funds and
other restricted
cash............... 850 456 (4,371) (779) (130)
Loan fees and
costs.............. (21) -- (2,402) (15) --
Leasing
commissions........ (10) (2) (67) (258) --
Other assets........ (802) (749) (1,578) (1,433) 86
Accounts payable and
accrued expenses... 1,898 530 2,192 267 (384)
Tenant security
deposits........... (46) (1) -- 144 (11)
------- ------ -------- ------- --------
Net cash provided by
(used in) operating
activities............. 3,178 972 (1,646) 355 (1,024)
INVESTING ACTIVITIES
Additions to rental
properties............. (1,319) (86) (1,578) (1,554) --
Purchase of rental
properties............. -- -- (93,322) -- (29,924)
------- ------ -------- ------- --------
Net cash used in
investing activities... (1,319) (86) (94,900) (1,554) (29,924)
FINANCING ACTIVITIES
Proceeds from secured
notes payable.......... -- -- 77,260 1,250 19,711
Cash portion of
contributed net
assets................. -- -- -- -- 9,427
Proceeds from issuance
of Series T preferred
stock.................. -- -- -- -- 1
Proceeds from issuance
of Series U preferred
stock.................. -- 105 110 -- --
Proceeds from issuance
of Series V preferred
stock (net of issuance
costs of $3,391)....... -- -- 24,109 -- --
Proceeds from unsecured
line of credit......... 2,500 -- -- 1,000 3,000
Increase in due to
Health Science
Properties Holding
Corporation............ -- (17) 2,300 -- --
Increase in advances
from Health Science
Properties Holding
Corporation............ 61 -- 120 105 --
Principal reductions of
unsecured line of
credit................. -- -- (4,000) -- --
Principal reductions of
secured notes payable.. (367) (139) (972) (519) --
Common dividends paid... (2,309) -- (939) (909) --
Preferred dividends
paid................... (690) (1) (665) -- --
------- ------ -------- ------- --------
Net cash (used in)
provided by financing
activities............. (805) (52) 97,323 927 32,139
Net increase (decrease)
in cash and cash
equivalents............ 1,054 834 777 (272) 1,191
Cash and cash
equivalents at
beginning of year...... 1,696 919 919 1,191 --
------- ------ -------- ------- --------
Cash and cash
equivalents at end of
year................... $ 2,750 $1,735 $ 1,696 $ 919 $ 1,191
======= ====== ======== ======= ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
year for interest...... $ 2,192 $ 851 $ 5,953 $ 3,409 $ 293
======= ====== ======== ======= ========
Cash paid during the
year for income taxes.. $ -- $ -- $ -- $ -- $ --
======= ====== ======== ======= ========
</TABLE>

See accompanying notes.

F-15
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 1997, YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THE
PERIOD OCTOBER 27, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1997 AND FOR THE PERIOD THEN ENDED
ARE UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Alexandria Real Estate Equities, Inc. (formerly known as Health Science
Properties, Inc.--see Note 11), a Maryland corporation (the "Company"), was
formed on October 27, 1994. The common stock, par value $.01 per share, of the
Company (the "Common Stock"), is wholly owned by Health Science Properties
Holding Corporation ("Holdings").

The Company and its wholly owned subsidiary, ARE-QRS Corp. ("QRS"), were
formed to acquire, manage and develop properties for lease to the life science
industry. As of December 31, 1996, the Company had acquired the following
properties:

<TABLE>
<CAPTION>
NUMBER NUMBER
OF OF RENTABLE
PROPERTY NAME LOCATION BUILDINGS TENANTS SQUARE FEET
------------- -------- --------- ------- -----------
<S> <C> <C> <C> <C>
10933 N. Torrey Pines
Road.................... San Diego, California 1 3 108,133
11099 N. Torrey Pines
Road.................... San Diego, California 1 4 86,962
3535 General Atomics
Court................... San Diego, California 1 3 76,084
3565 General Atomics
Court................... San Diego, California 1 1 43,600
1102 and 1124 Columbia
Street.................. Seattle, Washington 1 2 213,397
1413 Research Blvd....... Rockville, Maryland 1 1 105,000
300 and 401 Professional
Drive................... Gaithersburg, Maryland 2 3 111,179
25, 35 and 45 W. Watkins
Mill Road............... Gaithersburg, Maryland 1 5 138,938
1311, 1401 and 1431
Harbor Bay Parkway...... Alameda, California 3 4 147,777
---------
1,031,070
=========
</TABLE>

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its only subsidiary, QRS. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Proposed Transactions

The Company expects to elect real estate investment trust ("REIT") status
effective 1996 for federal income tax purposes. The Company currently intends
to consummate an Initial Public Offering ("Offering") of the Common Stock.
Prior to the consummation of the Offering, each outstanding share of Common
Stock will be split into 1,765.923 shares of Common Stock. In connection with
the Offering, the Company: (i) has formed a special-purpose limited liability
company of which the Company owns a 99% non-managing interest and QRS owns a
1% managing interest ("Harbor Bay, LLC"), (ii) will acquire a limited
liability company formed and owned by certain affiliates of PaineWebber
Incorporated, of which the Company will own a 99% non-managing interest and
QRS will own a 1% managing interest (the "Acquisition LLC") (see Note 11),
thereby acquiring three additional properties, and (iii) will repay certain
existing debt (the "Formation Transactions"). In addition, in connection with
the Offering, officers, directors and certain employees of the Company will be
granted an aggregate of 152,615 shares of Common Stock. Officers, directors
and certain employees of the Company will also receive options to purchase
57,000 shares of Common Stock under the Plan in substitution for previously
granted Holdings Stock Options (such stock options will be exercised in
connection with the Offering at a nominal exercise price, and thereafter no
further stock options will be issued under the Plan (See Note 9).

F-16
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In connection with the Offering, the Company will redeem all of the
outstanding shares of its Series T preferred stock and will convert into
shares of Common Stock all of the outstanding shares of its Series U and its
Series V preferred stock. As a result, the officers, directors and employees
of the Company, together with Holdings and AEW (the "Continuing Investors"),
will hold 3,634,777 shares of Common Stock after the Offering. None of the
current stockholders has any direct or indirect interest in the Acquisition
LLC or the additional properties owned thereby.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at 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.

Cash Equivalents

The Company considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents.

Rental Properties

Rental properties are recorded at cost. Costs associated with acquiring and
renovating properties are capitalized as incurred. At such times that events
or circumstances indicate that the carrying amount of a property may be
impaired, the Company makes an assessment of its recoverability by estimating
the future undiscounted cash flows, excluding interest charges, of the
property. If the carrying amount exceeds the aggregate future cash flows, the
Company would recognize an impairment loss to the extent the carrying amount
exceeds the fair value of the property. Based upon such periodic assessments,
no impairment has been determined and no rental properties carrying amounts
have been adjusted.

Maintenance and repairs are expensed as incurred. Major replacements and
betterments are capitalized and depreciated over their estimated useful lives.

Depreciation is computed on the straight-line method using estimated lives
of 30 to 40 years for building and improvements, and the term of the
respective lease for tenant improvements.

Restricted Cash

Restricted cash as of December 31, 1996 consists of security deposit funds
and a $4,715,000 tenant improvement reserve established by the Company
pursuant to a lease with a tenant at one of the Company's properties.

Rental Income

Rental income from leases with scheduled rent increases, free rent and other
rent concessions are recognized on a straight-line basis over the lease term.
Amounts currently recognized as income, and expected to be received in later
years, are included in tenant receivables and deferred rent. Amounts received
currently, but recognized as income in future years, are included in unearned
rent.

Loan Fees and Costs

Fees and costs incurred in obtaining long-term financing are amortized over
the terms of the related loan agreements and included in interest expense.

F-17
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Leasing Commissions

Leasing commissions are amortized on a straight-line basis over the term of
the related lease.

Offering Costs and Yield Adjustment

Offering costs associated with the issuance of preferred shares are deducted
from the proceeds of the preferred stock. The Company accretes the difference
between the minimum yield requirement on the preferred stock and the minimum
dividend payment as a charge to additional paid-in capital.

Fair Value of Financial Instruments

The Company believes the carrying amounts of its financial instruments,
except certain secured notes payable, approximate their fair values (see Note
4).

Net Income Per Share

Historical per share data is not meaningful because the Company is a wholly
owned subsidiary of Holdings and the Company's capital structure will be
materially affected by the Formation Transactions.

Pro forma shares of Common Stock outstanding on a historical net income
basis include all shares outstanding, after giving effect to the 1,765.923 to
one stock split, the issuance of stock grants and the exercise of substitute
stock options (see Note 9) in connection with the Formation Transactions, but
exclude the shares to be issued in the Offering.

Supplemental pro forma net income per share information is included below:

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
--------------------- --------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
The following table sets
forth the effects of the
Offering and the
repayment of the
Company's debt with the
proceeds of the Offering:
Historical net (loss)
income of the Company... $ (143) $ 2,175
Pro forma decrease in
interest expense
associated with the
repayment of debt ..... 1,351 2,830
-------------------- --------------------
Net income of the
Company adjusted for
repayment of debt ..... $ 1,208 $ 5,005
==================== ====================
Common Stock outstanding
on a historical basis.. 3,642,131 3,642,131
Common Stock issued in
the Offering for
repayment of debt...... 3,416,022 3,416,022
-------------------- --------------------
Shares of Common Stock
outstanding--pro
forma.................. 7,058,153 7,058,153
==================== ====================
Net income per share
reflecting the pro
forma effects of the
Offering and repayment
of debt................ $ 0.17 $ 0.71
==================== ====================
</TABLE>

Income Taxes

For the taxable year ended December 31, 1996, the Company intends to make an
election to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code. As a REIT, the Company generally will not be subject to federal
income tax if it meets a number of organizational and operational requirements
and distributes at least 95% of its taxable income for each tax year to its
stockholders. If the Company fails to qualify

F-18
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

as a REIT in any taxable year, the Company will be subject to federal income
tax (including any applicable alternative minimum tax) on its taxable income
at regular corporate tax rates. Even if the Company qualifies for taxation as
a REIT, the Company may be subject to state and local income taxes and to
federal income tax and excise tax on its undistributed income. None of the
Company's distributions made for the year ended December 31, 1996, represented
a return of capital.

For the year ended December 31, 1995, deferred income taxes are recognized
for tax consequences of temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods and tax net operating loss ("NOL") carryforwards.

Unaudited Interim Statements

The consolidated financial statements as of March 31, 1997 and for the three
months ended March 31, 1997 and 1996, are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a recurring nature.

2. RENTAL PROPERTIES

Rental properties are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1997 1996 1995
----------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Land........................................ $ 28,383 $ 28,383 $10,444
Building and improvements................... 122,725 121,236 45,397
Tenant and other improvements............... 1,365 1,535 413
-------- -------- -------
152,473 151,154 56,254
Less accumulated depreciation............... (5,158) (4,194) (1,901)
-------- -------- -------
$147,315 $146,960 $54,353
======== ======== =======
</TABLE>

All of the Company's rental properties are encumbered by deeds of trust and
assignments of the rents and leases associated with the properties. The
Company leases space, under noncancelable leases with remaining terms of 1 to
20 years. Certain tenants are also obligated to reimburse the Company for
specific operating expenses.

Minimum lease payments to be received under the terms of the operating lease
agreements, excluding expense reimbursements, as of December 31, 1996 are as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................ $21,663
1998........................................................ 20,371
1999........................................................ 16,107
2000........................................................ 12,459
2001........................................................ 9,004
Thereafter.................................................. 28,299
</TABLE>

F-19
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. UNSECURED LINE OF CREDIT

The unsecured line of credit to the Company from a bank had a maximum
commitment of $3,000,000 (which was subject to increase, with certain
limitations, to $4,000,000) bore interest at an annual rate of LIBOR plus 2.5%
(or prime plus 1.5%) and matured on October 31, 1995.

In September 1995, certain terms of the line of credit were amended. The
limitation to increase the maximum commitment to $4,000,000 was removed and
the maximum commitment was increased to $4,000,000. The interest rate was
increased to LIBOR plus 3.00% (or prime plus 1.75%) and the due date was
extended to January 31, 1996. The loan was further extended to June 30, 1996.
This loan was repaid in full during the year ended December 31, 1996.

4. SECURED NOTES PAYABLE

Secured notes payable are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1997 1996 1995
----------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Line of credit, with PaineWebber Incorporated,
secured by four of the Company's properties, with
a maximum commitment of $44,400,000, bearing
interest at LIBOR plus 2.5%, and due in 1999,
convertible to a 10 year term loan............... $ 44,400 $ 44,400 $ --
Notes payable to banks, an insurance company, and
a tenant/prior owner secured by first and second
deeds of trust on the rental properties, bearing
interest at fixed rates ranging from 8.25% to
9.00% and due at various dates through 2014...... 66,800 67,152 35,204
Note payable to a bank, secured by certain
building improvements, bearing interest at prime
plus 1.5% and due in 1997........................ 365 380 440
Line of credit with a maximum commitment of
$1,250,000, secured by deeds of trust on rental
properties, bearing interest at LIBOR plus 2.5%
and due in 1997.................................. 1,250 1,250 1,250
-------- -------- -------
$112,815 $113,182 $36,894
======== ======== =======
</TABLE>

Future principal payments due on secured notes payable, as of December 31,
1996, are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 25,016
1998........................................................ 1,430
1999........................................................ 49,523
2000........................................................ 1,192
2001........................................................ 1,295
Thereafter.................................................. 34,726
--------
$113,182
========
</TABLE>

The prime and LIBOR rates of interest at December 31, 1996 were 8.25% and
5.78%, respectively.

F-20
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Based on the borrowing rates currently available to the Company for bank
loans with similar maturities, the fair value of secured notes payable as of
December 31, 1996 and 1995 are approximately $113,215,000 and $37,650,000,
respectively.

Effective October 1, 1996, the Company entered into two interest rate floor
and cap transactions with notional amounts of $44,500,000 to convert its
floating rate line of credit with PaineWebber Incorporated to a fixed rate
liability. The agreements limit the risk of rising interest rates associated
with the Company's line of credit by fixing the variable portion of the
interest rate on variable rate debt at 8.0% through October 1, 1999. The
Company does not hold or issue the interest rate agreements for trading
purposes and is exposed to possible credit risk if the counterparties fail to
perform on the contracts. The cost of the derivative is included as a loan
cost and amortized over the term of the line of credit as an adjustment to the
interest rate yield.

5. INCOME TAXES

As of December 31, 1996, the Company had net deferred tax assets totaling
$1,246,000 arising primarily from differences between financial accounting and
income tax reporting for the effects of (i) straight line rents;
(ii) depreciation and amortization; (iii) unearned rents; (iv) the present
value of a post-retirement benefit; and (v) an NOL carryforward totaling
$213,000. Since the Company intends to qualify as a REIT it has fully reserved
the amount of income tax benefit relating to its deferred tax assets to the
extent they exceed deferred tax liabilities, and has not recognized any
deferred tax expense.

6. MANDATORILY REDEEMABLE PREFERRED STOCK

Series V cumulative convertible preferred stock

Series V preferred stockholders are entitled to dividends at an annual rate
of 10% of the stated value per share during the first twelve dividend periods
or such larger amount as would be payable on an as converted basis were the
Series V preferred stock converted to common stock. Beginning with the
thirteenth dividend period, the annual dividend rate increases to 15%. The
stated value of each share is $1,000. Dividends are cumulative and are payable
in quarterly equal installments on March 31, June 30, September 30, and
December 31 of each year. In the event of any liquidation events, the Series V
preferred stockholders are entitled to a liquidation preference that will
provide an internal rate of return of 15% on the stated value per share.

Upon the closing of an Offering during the four years following the issue
date of the shares of Series V preferred stock, the Company has the right to
redeem no less than one-half of the Series V preferred stock for cash and to
convert the balance into fully paid and nonassessable shares of Common Stock.
The redemption price per share of Series V preferred stock is the stated value
plus an amount calculated to provide an internal rate of return of 20%.
Notwithstanding the Company's option to redeem and convert the Series V
preferred stock as set forth above, the Series V preferred stockholders have
elected to convert all of the Series V preferred stock at the conversion share
price (as defined). In addition, each share of Series V preferred stock may
convert at the conversion share price into Common Stock at the option of the
holder (i) prior to the closing of a merger or consolidation of the Company,
(ii) at any time after the fourth anniversary of the issue date or (iii) upon
consummation of the Offering.

Other than in connection with a partial cash redemption (as defined), the
Company may not redeem the Series V preferred stock prior to the third
anniversary of the issue date. Thereafter, such shares may be redeemed in
whole but not in part, at an amount which provides the holders an internal
rate of return equal to 25%, for the first three years and 20% thereafter.

The Series V preferred stock is subject to certain procedural and operating
covenants including payment of regular dividends and maintaining minimum cash
available for distribution (as defined). Following the first

F-21
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

anniversary of the issue date, the holder of the Series V preferred stock
shall have the option upon a breach of such covenants to cause the Company to
redeem such shares for an amount in cash necessary to provide an internal rate
of return ranging from 15% to 20% depending on the covenant breach which
triggered such redemptions.

The Series V preferred stock ranks senior to the Common Stock and all other
classes of preferred stock issued by the Company with respect to dividends,
liquidations, and for all other purposes. The difference between the amount of
dividends and the internal rate of return to be earned upon the closing of the
Offering is accreted to the recorded value of the stock.

7. PREFERRED STOCK

Series T preferred stock

Holders of the Series T preferred stock are entitled to dividends at an
annual rate of 8.5% of the stated value per share. Dividends are fully
cumulative and are payable, in arrears, on July 1 and January 1 of each year.

The Series T preferred stock may be redeemed from time to time, in whole or
in part, at the option of the Company, at a redemption price equal to 100% of
the stated value per share, plus all accrued and unpaid dividends, whether or
not authorized and declared. The stated value per share of the Series T
preferred stock is $100.

In addition to separate class voting rights on certain matters directly
effecting the specific status and rights of the Series T preferred
stockholders, the Series T preferred stockholders are entitled to vote upon
all matters upon which holders of Common Stock have the right to vote.

Series T preferred stock ranks on parity with Series U preferred stock and
is junior to Series V preferred stock with respect to dividends, liquidations,
and all other purposes.

Series U cumulative convertible preferred stock

Holders of the Series U preferred stock are entitled to dividends at an
annual rate of 8.5% of the stated value per share. Dividends are fully
cumulative and are payable in arrears on January 1 of each year.

Commencing on the fifth anniversary of the issue date, the Series U
preferred stock may be redeemed, at a redemption price equal to 135% of the
stated value per share, plus all accrued and unpaid dividends. The stated
value per share of the Series U preferred stock is $500.

The Series U preferred stock is mandatorily convertible into Common Stock if
(i) shares of Common Stock are registered under the Securities Act of 1933, as
amended, pursuant to an effective registration statement, and (ii) the Company
has entered into an underwriting agreement to sell shares of Common Stock
(which underwriting agreement sets forth the price at which such shares will
be offered for sale). Upon such conversion, each share of Series U preferred
stock will convert into a number of shares of Common Stock having a value
equal to 135% of the Series U stated value plus all accrued and unpaid
dividends.

The Series U holders have no voting rights other than on certain matters
directly affecting the specific status and rights of the Series U
stockholders.

The Series U preferred stock ranks on parity with Series T preferred stock
and is junior to Series V preferred stock with respect to dividends,
liquidations, and all other purposes.

F-22
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. COMMITMENTS AND CONTINGENCIES

Litigation

Employment Agreements

As of year end, two of the Company's executives had signed employment
agreements with terms expiring on December 31, 2000. For the year ended
December 31, 1997, these executives would have earned a combined salary of
$475,000. For the remaining three years the agreements provided for a combined
salary of $415,000. According to the terms of his agreement, one of the
executives would have earned an annual retirement benefit equal to $90,000 per
year for the remainder of his life and his current spouse's life. Subsequent
to year end, the executive announced his intention to retire upon completion
of the Offering. In connection therewith, his agreement was amended to provide
a retirement benefit of $150,000 per year for the first three years following
the consummation of the Offering, at which time the benefit will be reduced to
$90,000 per year, plus an annual cost of living increase of 2% per year for
the remainder of the executive's life and the executive's current spouse's
life. For the three months ended March 31, 1997 and the year ended December
31, 1996, the Company recorded a post-retirement benefit expense for past
services provided by this executive equal to $632,000 and $438,000,
respectively. As of March 31, 1997, the total accrual relating to the post-
retirement benefit is $1,070,000. The accrual was made based upon the
estimated number of payments to be made discounted at a rate of 8%.

Three employees are subject to employment agreements that provide for a
combined annual salary of $435,000 per year and are for a term ending on
December 31, 1998, with a provision for automatic one year extensions until
either the executive or the Company notifies the other that such party does
not wish to extend the agreement.

Each of the employment agreements of the executives and employees provides
for bonuses and base salary adjustments. With respect to two of these
individuals, the bonus is tied to the annual increase in funds from operations
(as defined).

For the three months ended March 31, 1997, an accrual of $353,000 was made
for a special bonus awarded to an officer of the Company in connection with
the Offering.

Concentration of Credit Risk

The Company maintains its cash and cash equivalents at insured financial
institutions. The combined account balances at each institution periodically
exceeds FDIC insurance coverage, and, as a result, there is a concentration of
credit risk related to amounts on deposit in excess of FDIC insurance
coverage. Management believes that the risk is not significant.

The Company is dependent on rental payments from a limited number of tenants
and the inability of any single tenant to make its lease payments could
adversely affect the Company and its ability to make distributions to
stockholders. The Company currently has approximately 31 leases with a total
of approximately 26 tenants, and eight of the Company's 15 properties
(including the properties to be acquired in connection with the Company's
acquisition of the Acquisition LLC--see Note 11) are single-tenant properties.
At February 1, 1997, three of the Company's tenants, accounted for
approximately 37% of the Company's aggregate annualized base rent.

F-23
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company does not generally require collateral or other security from its
tenants other than security deposits. The Company has available two
irrevocable letters of credit totaling $858,000 which are used as security
deposits for two leases.

9. STOCK OPTION PLANS

1996 Stock Option Plan

The Company has a ten-year incentive and nonqualified stock option plan (the
"Plan") for certain employees and non-employee directors of the Company. Under
the Plan, options to purchase shares of common stock of the Company are
granted to eligible participants at an exercise price to be determined by
the Administrator of the Plan (the "Administrator") at the time of grant,
which may not be less than the Fair Market Value (as defined in the Plan) of
the common stock as of the grant date. The Plan resulted from the
consolidation of the Company's 1996 Stock Option Plan, 1996 Stock Option Plan
for Non-Employee Directors, 1995 Substitute Stock Option Plan and 1995
Substitute Stock Option Plan for Non-Employee Directors. Non-employee
directors of the Company are only eligible to receive non-qualified stock
options under the Plan. Unless otherwise determined by the Administrator, the
option shares may be exercised as follows:

. 50% one year following the grant date.

. 75% two years following the grant date.

. 100% three years following the grant date.

The Administrator may waive such installment exercise provisions at any time
based on such factors as the Administrator may determine in its sole
discretion. In addition, any option that is outstanding and not yet fully
exercisable under the Plan shall become fully and immediately exercisable upon
(i) certain events of termination of employment as set forth in the Plan, (ii)
the underwritten initial public offering of common stock by the Company or
(iii) a Change in Control (as defined in the Plan). A maximum of 239.60 shares
of common stock are authorized for issuance under the Plan and none are
outstanding.

Under the Plan, holders of options granted under the Holdings 1994 Stock
Option Plan, as amended, or the Holdings 1994 Stock Option Plan for Non-
Employee Directors, as amended, ("Holdings Stock Options") are entitled to
receive substitute stock options in the event of certain changes in the
capital or corporate structure of the Company or a subsidiary of the Company
(including upon the consummation of the Offering). Substitute stock options
will be granted under the Plan in substitution for then outstanding Holdings
Stock Options to the extent that the Administrator determines, in its sole
discretion, that the grant of substitute stock options is necessary to provide
that holders of Holdings Stock Options not be deprived of benefits to which
they would otherwise have been entitled had such event or events not occurred.
Any grant of a substitute stock option will be subject to the prior
cancellation and surrender of the corresponding Holdings Stock Option. The
terms and conditions of substitute stock options shall be substantially
equivalent to those of the Holdings Stock Options in respect of which the
substitute stock options are granted. As of December 31, 1996, 7,932 Holdings
Stock Options had been issued and are outstanding. In January 1997, an
additional 4,045 options were issued by Holdings. No substitute stock options
were outstanding at December 31, 1996.

F-24
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

certain employees of the Company will directly own 209,615 shares of Common
Stock, representing approximately 2.0% of the outstanding shares of Common
Stock.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The new accounting standards prescribed by
SFAS No. 123 are optional, and the Company has elected to account for its
stock option plan as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The effect of applying the SFAS
No. 123 fair value method to the Company's stock based awards for the years
ended December 31, 1996 and 1995 would result in net income and net income per
share that are not materially different from amounts reported. The effect of
applying the SFAS No. 123 fair value method to the Company's stock based
awards for the three months ended March 31, 1997 is anti-dilutive.

The following table sets forth certain information regarding activity in
Holdings Stock Options, including (i) the grant date of the Holdings Stock
Options, (ii) the number of stock options that have been granted in connection
with the Offering in substitution for the underlying Holdings Stock Options
(based on a substitution ratio of 4.76 substitute stock options for each
Holdings Stock Option) and (iii) the weighted average exercise price of
substitute stock options for shares of Company Common Stock.

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31, 1997
--------------------------------------
WEIGHTED-
GRANT SUBSTITUTE AVERAGE
DATE STOCK EXERCISE PRICE
OF HOLDINGS OPTIONS OF SUBSTITUTE
STOCK OPTION GRANTED(1) OPTIONS(2)
------------ ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding--
beginning of
year........... 37,749 $0.54
Granted......... 1/28/97 19,251 0.54
Exercised....... -- --
Forfeited....... -- --
------ -----
Outstanding--end
of year........ 57,000 $0.54
====== =====
Exercisable at
end of year.... 32,855 $0.54
====== =====
Weighted-average
fair value of
options granted
during the year
based upon the
minimum value
method......... $0.93
=====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995
-------------------------------------- --------------------------------------
WEIGHTED- WEIGHTED-
GRANT SUBSTITUTE AVERAGE GRANT SUBSTITUTE AVERAGE
DATE STOCK EXERCISE PRICE DATE STOCK EXERCISE PRICE
OF HOLDINGS OPTIONS OF SUBSTITUTE OF HOLDINGS OPTIONS OF SUBSTITUTE
STOCK OPTION GRANTED(1) OPTIONS(2) STOCK OPTION GRANTED(1) OPTIONS(2)
------------ ---------- -------------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--
beginning of
year........... 78,935 $0.54 51,727 $0.54
Granted......... 7/1/96 1,756 0.54 12/31/95 27,208 0.54
Exercised....... (42,942) 0.54 -- --
Forfeited....... -- -- -- --
---------- -------------- ---------- --------------
Outstanding--end
of year........ 37,749 $0.54 78,935 $0.54
========== ============== ========== ==============
Exercisable at
end of year.... 13,606 $0.54 35,384 $0.54
========== ============== ========== ==============
Weighted-average
fair value of
options granted
during the year
based upon the
minimum value
method......... $0.03 $0.04
============== ==============
</TABLE>
- -------
(1) The grant of substitute stock options was made in May 1997, subject to
effectiveness of the Registration Statement for the Offering and prior
surrender and cancellation of the corresponding Holdings Stock Options.
(2) Represents weighted average exercise price of substitute options for
shares of Company Common Stock. The weighted average exercise price of the
underlying Holdings Stock Options is $2.55 per share of Holdings common
stock.

The Company has recorded $394,000 of compensation expense for the quarter
ended March 31, 1997, reflecting the aggregate difference between the assumed
initial public offering price of $21.00 per share and the $0.54 exercise price
of the 19,251 options granted by the Company in substitution for the Holdings
Stock Options granted in January 1997.

No compensation expense has been recorded with respect to Holdings Stock
Options issued during the years ended December 31, 1996 and 1995, which were
issued with an exercise price equal to the then fair market value of the
Holdings common stock. The fair market value of the Holdings common stock was
determined based on, among other things, the value of the Company's Common
Stock owned by Holdings, discounts to reflect the status of the shares of
Holdings common stock subject to the options as minority interests in
Holdings, and liquidation preferences of other creditors and security holders
of Holdings. Upon effectiveness of the Registration Statement, the Company
will record compensation expense with respect to the options issued in
substitution for Holdings Stock Options granted prior to December 31, 1996,
based on the initial public offering price. Based on the actual initial public
offering price of $20.00 per share, this additional compensation expense will
be $715,000.

F-25
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The weighted-average remaining contractual life at December 31, 1996 and
March 31, 1997 of all options are 9.0 and 8.8 years, respectively.

Post-IPO Stock Option Plan

The Company has adopted a stock option and incentive plan (the "1997 Stock
Option Plan"). The 1997 Stock Option Plan will be administered by the
Compensation Committee of the Board of Directors and provides for the grant of
incentive stock options intended to qualify as such under Section 422 of the
Internal Revenue Code, non-qualified stock options, stock appreciation rights
and restricted stock to employees, officers, directors and independent
contractors (including non-employee directors) of the Company with respect to
900,000 shares of Common Stock; provided, that incentive stock options may be
granted only to employees of the Company. The 1997 Stock Option Plan permits
the Compensation Committee to select eligible employees, officers, directors
and independent contractors (including non-employee directors) of the Company
to receive awards, to determine the type and number of awards to be granted
and to determine the terms, conditions, restrictions and performance criteria
relating to any award. In connection with the Offering, the Company will grant
options to officers, directors and certain employees of the Company under the
1997 Stock Option Plan with respect to an aggregate of 600,000 shares of
Common Stock.

10. RELATED PARTY TRANSACTIONS

For the three months ended March 31, 1997 and for the years ended December
31, 1996 and 1995, the Company incurred $645,000, $1,708,000 and $369,000,
respectively, for legal services provided by a law firm of which a stockholder
of Holdings is a member.

General and administrative expenses for the three months ended March 31,
1997 and for the years ended December 31, 1996 and 1995 include $18,000,
$49,000 and $35,000, respectively, for payroll accounting and office space
provided by a shareholder of Holdings.

Holdings advanced to the Company $2,483,000 at a rate of 10% which is due on
demand. For the three months ended March 31, 1997 and for the year ended
December 31, 1996, $61,000 and $162,000 of interest was accrued.

11. SUBSEQUENT EVENTS

Subsequent to December 31, 1996, the following events occurred:

The Company assigned its rights to purchase three properties to the
Acquisition LLC, which is controlled by PaineWebber Real Estate Holdings, Inc.
and PW Realty Partners LLC (together "PaineWebber"). In January 1997, the
Acquisition LLC acquired the three properties for approximately $52 million.
The Company, upon the occurrence of certain events (but no later than
September 30, 1998), is required to purchase the outstanding membership
interests in the Acquisition LLC. The purchase price will equal the original
purchase price of the properties (adjusted for an acquisition fee payable to
PaineWebber and cash flow from the properties) plus a percentage of the excess
of (i) the aggregate fair market value, as defined, over (ii) the adjusted
purchase price. PaineWebber has agreed to amend the purchase agreement to
reduce the purchase price by approximately $766,000. Based upon the above
formula (after giving effect to such reduction), the Company will be required
to purchase the membership interests in the Acquisition LLC for approximately
$58.9 million with a portion of the net proceeds of the Offering. The amount
paid to PaineWebber in excess of the purchase price paid by the Acquisition
LLC will be accounted for as a financing cost and recognized when the
transaction is completed.

F-26
<PAGE>

ALEXANDRIA REAL ESTATE EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On January 24, 1997, the Company entered into an unsecured line of credit of
$2,500,000 which bears interest at either the "Reference Rate" or the LIBOR
rate, plus a margin based upon the ratio of liabilities to gross asset value,
and matures on December 31, 1997. The Company has drawn $2,500,000 subsequent
to December 31, 1996. The line of credit contains certain financial covenants,
and repayment is guaranteed by Holdings.

Subsequent to year-end, the Company adopted a 401(k) plan which became
effective January 1, 1997. Each employee of the Company may enroll in the plan
on such employee's date of hire. An actively employed employee is eligible to
receive a matching contribution under the plan equal to 50% of each
participant's contribution. Plan participants are immediately vested in their
contributions to the plan and the matching contributions by the Company.

Subsequent to year-end, the Company changed its name from Health Science
Properties, Inc. to Alexandria Real Estate Equities, Inc. and changed the name
of its consolidated subsidiary from HSP-QRS Corp. to ARE-QRS Corp.

Subsequent to year-end, AEW notified the Company of its election to convert
all of its Series V preferred stock into shares of Common Stock in connection
with the Offering.

12. NON-CASH TRANSACTIONS

Non-Cash Contribution

In connection with the formation of the Company, the following net assets
were contributed from Holdings on November 4, 1994:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Rental properties, net...................................... $ 24,544
Cash and cash equivalents................................... 9,427
Tenant security deposit funds............................... 306
Other assets, net........................................... 655
Secured notes payable and unsecured line of credit.......... (16,453)
Tenants security deposits................................... (403)
Accounts payable and accrued expenses....................... (948)
--------
Net assets................................................ $ 17,128
========
</TABLE>

The assets and liabilities were recorded by the Company based on their
carrying value to Holdings at the date of contribution.

Pro Forma Balance Sheet

The pro forma balance sheet has been prepared to present the capital
structure which will exist after the conversion of the Series V and Series U
preferred stock, redemption of the Series T preferred stock, the 1,765.923 for
one stock split, and the issuance of the stock grants and the exercise of
stock options that will occur in connection with the Offering and the
Formation Transactions.

F-27
<PAGE>

SCHEDULE III

ALEXANDRIA REAL ESTATE EQUITIES, INC.

RENTAL PROPERTIES AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS ACQUISITION TOTAL COSTS
--------------------- ------------- ------------------------------
SQUARE BUILDINGS AND BUILDINGS AND ACCUMULATED
PROPERTY FOOTAGE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION ENCUMBRANCES
- -------- ----------- ------- ------------- ------------- ------- ------------- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10933 N. Torrey
Pines Road..... 108,133 $ 3,903 $ 5,960 $1,048 $ 3,903 $ 7,008 $ 10,911 $ 586 $ 7,741
11099 N. Torrey
Pines Road..... 86,962 2,663 10,649 1,545 2,663 12,194 14,857 1,069 10,106
3535 General
Atomics Court.. 76,084 2,651 18,046 153 2,651 18,199 20,850 1,244 12,180
3565 General
Atomics Court.. 43,600 1,227 9,554 -- 1,227 9,554 10,781 650 6,303
1102 and 1124
Columbia
Street......... 213,397 6,566 23,528 73 6,566 23,601 30,167 339 32,452
1413 Research
Boulevard...... 105,000 2,317 9,611 238 2,317 9,849 12,166 121 8,600
300 and 401
Professional
Drive.......... 111,179 2,000 12,302 22 2,000 12,324 14,324 95 10,800
25, 35 and 45 W.
Watkins Mill
Road........... 138,938 3,281 14,416 32 3,281 14,448 17,729 69 11,700
1311, 1401 and
1431 Harbor Bay
Parkway........ 147,777 3,775 15,526 68 3,775 15,594 19,369 21 13,300
--------- ------- -------- ------ ------- -------- -------- ------ --------
1,031,070 $28,383 $119,592 $3,179 $28,383 $122,771 $151,154 $4,194 $113,182
========= ======= ======== ====== ======= ======== ======== ====== ========
<CAPTION>
PROPERTY YEAR BUILT
- -------- ----------
<S> <C>
10933 N. Torrey
Pines Road..... 1971
11099 N. Torrey
Pines Road..... 1986
3535 General
Atomics Court.. 1991
3565 General
Atomics Court.. 1991
1102 and 1124
Columbia
Street......... 1975
1413 Research
Boulevard...... 1967
300 and 401
Professional
Drive.......... 1989/1987
25, 35 and 45 W.
Watkins Mill
Road........... 1989
1311, 1401 and
1431 Harbor Bay
Parkway........ 1984/1986/
1985

</TABLE>

A summary of activity of rental office properties and accumulated
depreciation is as follows:

<TABLE>
<CAPTION>
RENTAL PROPERTIES
DECEMBER 31,
------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period................... $ 56,254 $54,700 $ --
Improvements..................................... 1,578 1,554 47
Acquisition of land, building and improvements... 93,322 -- 54,653
-------- ------- -------
Balance at end of period......................... $151,154 $56,254 $54,700
======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period................... $ 1,901 $ 333 $ 270
Depreciation expense............................. 2,293 1,568 63
-------- -------- ------
Balance at end of period......................... $ 4,194 $ 1,901 $ 333
======== ======== ======
</TABLE>

F-28
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors Alexandria Real Estate Equities, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 1413 Research Blvd. (the "Property") for the year ended December 31, 1995.
This statement of revenue and certain expenses is the responsibility of the
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Alexandria Real Estate Equities, Inc. Certain expenses (described in Note
1) that would not be comparable to those resulting from the proposed future
operations of the Property are excluded and the statement is not intended to
be a complete presentation of the revenue and expenses of the Property.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Property for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
February 20, 1997

F-29
<PAGE>

1413 RESEARCH BLVD.

STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD FOR THE YEAR
JANUARY 1, ENDED
1996 TO DECEMBER 31,
JULY 2, 1996 1995
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental........................................... $ 711 $407
Tenant recoveries................................ 595 243
------ ----
Total revenue.................................. 1,306 650
Certain Expenses:
Utilities........................................ 194 128
Repairs and maintenance.......................... 389 134
Insurance........................................ 10 --
Taxes and license................................ 87 174
------ ----
Total certain expenses......................... 680 436
------ ----
Excess of revenue over certain expenses........ $ 626 $214
====== ====
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-30
<PAGE>

1413 RESEARCH BLVD.

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statement of revenue and certain expenses includes the
operations of 1413 Research Blvd. located in Rockville, Maryland (the
"Property") which was acquired by Alexandria Real Estate Equities, Inc., a
Maryland corporation (the "Company") from a nonaffiliated third party. The
Property is 100% leased to the United States Government.

Basis of Presentation

The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of the Company.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of the Property.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

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

Unaudited Interim Statement

The statement of revenue and certain expenses for the period January 1,
1996, to July 2, 1996 (date of acquisition) is unaudited. In the opinion of
management, this financial statement reflects all adjustments necessary for a
fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.

2. RENTAL OFFICE PROPERTY

The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997........................................................... $ 1,563,000
1998........................................................... 1,563,000
1999........................................................... 1,366,000
2000........................................................... 1,225,000
2001........................................................... 919,000
Thereafter..................................................... --
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.

F-31
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors Alexandria Real Estate Equities, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 300 and 401 Professional Drive (the "Property") for the year ended December
31, 1995. This statement of revenue and certain expenses is the responsibility
of the management of the Property. Our responsibility is to express an opinion
on the statement of revenue and certain expenses based on our audit.

Ernst & Young LLP

Los Angeles, California
February 20, 1997

F-32
<PAGE>

300 AND 401 PROFESSIONAL DRIVE

STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD FOR THE YEAR
JANUARY 1, 1996 ENDED
TO SEPTEMBER 10, DECEMBER 31,
1996 1995
---------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental.......................................... $1,096 $1,582
Tenant recoveries............................... 350 525
------ ------
Total revenue................................. 1,446 2,107
Certain Expenses:
Utilities....................................... 75 76
Repairs and maintenance......................... 85 260
Insurance....................................... 13 8
Taxes and license............................... 177 181
------ ------
Total certain expenses........................ 350 525
------ ------
Excess of revenue over certain expenses....... $1,096 $1,582
====== ======
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-33
<PAGE>

300 AND 401 PROFESSIONAL DRIVE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statement of revenue and certain expenses includes the
operations of 300 and 401 Professional Drive located in Gaithersburg, Maryland
(the "Property") which was acquired by Alexandria Real Estate Equities, Inc.,
a Maryland corporation (the "Company") from a nonaffiliated third party. The
Property consists of two buildings that are 100% occupied and leased to three
tenants under triple net leases which require the tenants to pay substantially
all expenses associated with the Property including operating and maintenance,
utilities, taxes and insurance.

Basis of Presentation

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

The statement of revenue and certain expenses for the period January 1,
1996, to September 10, 1996 (date of acquisition) is unaudited. In the opinion
of management, this financial statement reflects all adjustments necessary for
a fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.

2. RENTAL OFFICE PROPERTY

The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997.............................................................. $1,640,000
1998.............................................................. 1,674,000
1999.............................................................. 1,030,000
2000.............................................................. 1,023,000
2001.............................................................. 1,039,000
Thereafter........................................................ 4,592,000
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.

F-34
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Alexandria Real Estate Equities, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 25, 35 and 45 W. Watkins Mill Road (the "Property") for the year ended
December 31, 1995. This statement of revenue and certain expenses is the
responsibility of the management of the Property. Our responsibility is to
express an opinion on the statement of revenue and certain expenses based on
our audit.

Ernst & Young LLP

Los Angeles, California
February 20, 1997

F-35
<PAGE>

25, 35 AND 45 W. WATKINS MILL ROAD

STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD
JANUARY 1, FOR THE
1996 TO YEAR ENDED
OCTOBER 18, DECEMBER 31,
1996 1995
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental........................................... $1,296 $1,739
Tenant recoveries................................ 300 287
------ ------
Total revenue.................................. 1,596 2,026
Certain Expenses:
Utilities........................................ 31 46
Repairs and maintenance.......................... 74 52
Insurance........................................ 11 12
Taxes and license................................ 216 198
------ ------
Total certain expenses......................... 332 308
------ ------
Excess of revenue over certain expenses........ $1,264 $1,718
====== ======
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-36
<PAGE>

25, 35 AND 45 W. WATKINS MILL ROAD

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statement of revenue and certain expenses includes the
operations of 25, 35 and 45 W. Watkins Mill Road located in Gaithersburg,
Maryland (the "Property") which was acquired by Alexandria Real Estate
Equities, Inc., a Maryland corporation (the "Company") from a nonaffiliated
third party. The Property consists of three buildings that are 100% occupied
and leased to five tenants under triple net leases which require the tenants
to pay substantially all expenses associated with the property including
operating and maintenance, utilities, taxes and insurance.

Basis of Presentation

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

The statement of revenue and certain expenses for the period January 1,
1996, to October 18, 1996 (date of acquisition) is unaudited. In the opinion
of management, this financial statement reflects all adjustments necessary for
a fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.

2. RENTAL OFFICE PROPERTY

The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997............................................................ $1,572,000
1998............................................................ 1,591,000
1999............................................................ 1,618,000
2000............................................................ 1,667,000
2001............................................................ 1,074,000
Thereafter...................................................... 7,358,000
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.

F-37
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Alexandria Real Estate Equities, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 1311, 1401 and 1431 Harbor Bay Parkway (the "Property") for the year ended
December 31, 1995. This statement of revenue and certain expenses is the
responsibility of the management of the Property. Our responsibility is to
express an opinion on the statement of revenue and certain expenses based on
our audit.

Ernst & Young LLP

Los Angeles, California
February 20, 1997

F-38
<PAGE>

1311, 1401 AND 1431 HARBOR BAY PARKWAY

STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRE ACQUISITION
PERIOD
JANUARY 1, FOR THE
1996 TO YEAR ENDED
DECEMBER 12, DECEMBER 31,
1996 1995
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Rental........................................... $2,144 $2,188
Tenant recoveries................................ 142 207
Other income..................................... 4 --
------ ------
Total revenue.................................. 2,290 2,395
Certain Expenses:
Utilities........................................ 62 126
Repairs and maintenance.......................... 271 269
Insurance........................................ 22 21
Taxes and license................................ 200 200
------ ------
Total certain expenses......................... 555 616
------ ------
Excess of revenue over certain expenses........ $1,735 $1,779
====== ======
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-39
<PAGE>

1311, 1401 AND 1431 HARBOR BAY PARKWAY

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statement of revenue and certain expenses includes the
operations of 1311, 1401 and 1431 Harbor Bay Parkway located in Alameda,
California (the "Property") which was acquired by Alexandria Real Estate
Equities, Inc., a Maryland corporation (the "Company") from a nonaffiliated
third party. The Property consists of three buildings that are 86% occupied
and leased to four tenants under triple net leases which require the tenants
to pay substantially all expenses associated with the property including
operating and maintenance, utilities, taxes and insurance.

Basis of Presentation

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

The statement of revenue and certain expenses for the period January 1,
1996, to December 12, 1996 (date of acquisition) is unaudited. In the opinion
of management, this financial statement reflects all adjustments necessary for
a fair presentation of the results of the respective interim period. All such
adjustments are of a normal, recurring nature.

2. RENTAL OFFICE PROPERTY

The future minimum lease payments to be received under noncancelable
operating leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997........................................................... $ 3,555,000
1998........................................................... 3,595,000
1999........................................................... 2,763,000
2000........................................................... 2,116,000
2001........................................................... 2,116,000
Thereafter..................................................... 11,732,000
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.

1431 Harbor Bay Parkway is 100% leased to the US Food and Drug
Administration. This lease has a monthly base rent of $246,000 with step downs
in monthly base rent to $176,000 and $63,000 on January 1, 1999 and January 1,
2004, respectively.

F-40
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Alexandria Real Estate Equities, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 1550 East Gude Drive (the "Property") for the year ended December 31, 1996.
This statement of revenue and certain expenses is the responsibility of the
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Property for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
February 20, 1997

F-41
<PAGE>

1550 EAST GUDE DRIVE

STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenue:
Rental........................................................... $539
Tenant recoveries................................................ 62
----
Total revenue.................................................. 601
Certain Expenses:
Taxes and license................................................ 62
----
Excess of revenue over certain expenses........................ $539
====
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-42
<PAGE>

1550 EAST GUDE DRIVE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statement of revenue and certain expenses includes the
operations of 1550 East Gude Drive located in Rockville, Maryland (the
"Property") which was acquired by PW Acquisitions I, LLC (the "Acquisition
LLC"). Concurrently with the consummation of a proposed initial public
offering of the Common Stock of Alexandria Real Estate Equities, Inc., a
Maryland corporation, (the "Company"), the Acquisition LLC will be acquired by
the Company. The Property is 100% leased to a single tenant under a triple net
lease which requires the tenant to pay for substantially all costs associated
with the building including a reimbursement to the owner for real estate
taxes.

Basis of Presentation

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the term of the
related lease.

Risks and Uncertainties

2. RENTAL OFFICE PROPERTY

The future minimum lease payments to be received under the noncancelable
operating lease as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997.............................................................. $527,000
1998.............................................................. 590,000
1999.............................................................. 609,000
2000.............................................................. 627,000
2001.............................................................. 646,000
Thereafter........................................................ 54,000
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant recoveries of operating expenses.

F-43
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Alexandria Real Estate Equities, Inc.

We have audited the accompanying balance sheet of PW Acquisitions I, LLC
(the "Company") as of March 31, 1997, and the related statements of income and
changes in member's capital, and cash flows for the period January 13, 1997
(commencement of operations) to March 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of March
31, 1997, and the results of its operations and its cash flows for the period
January 13, 1997 (commencement of operations) to March 31, 1997, in conformity
with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
April 24, 1997

F-44
<PAGE>

PW ACQUISITIONS I, LLC

BALANCE SHEET
(IN THOUSANDS)

MARCH 31, 1997

<TABLE>
<S> <C>
ASSETS
Rental properties, net................................................. $51,435
Cash................................................................... 187
Tenant security deposit funds and other restricted cash................ 302
Tenant receivables and deferred rent................................... 123
-------
Total assets......................................................... $52,047
=======
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable and accrued expenses.................................. $ 66
Tenant security deposits............................................... 302
Prepaid rents.......................................................... 151
-------
Total liabilities.................................................... 519
Commitments and contingencies --
Member's capital....................................................... 51,528
-------
Total liabilities and member's capital............................... $52,047
=======
</TABLE>

See accompanying notes.

F-45
<PAGE>

PW ACQUISITIONS I, LLC

INCOME STATEMENT AND CHANGES IN MEMBERS' CAPITAL
(IN THOUSANDS)

FOR THE PERIOD JANUARY 13, 1997 (COMMENCEMENT OF OPERATIONS) TO MARCH 31, 1997

<TABLE>
<S> <C>
Revenue:
Rental............................................................ $ 1,450
Tenant recoveries................................................. 14
Other............................................................. 3
-------
1,467
Expenses:
Rental operations................................................. 54
General and administrative........................................ 32
Depreciation and amortization..................................... 234
-------
320
-------
Net income.......................................................... 1,147
-------
Contributions....................................................... 51,709
Distributions....................................................... (1,328)
Beginning Member's capital.......................................... --
-------
Ending Member's capital............................................. $51,528
=======
</TABLE>

See accompanying notes.

F-46
<PAGE>

PW ACQUISITIONS I, LLC

STATEMENT OF CASH FLOWS
(IN THOUSANDS)

FOR THE PERIOD JANUARY 13, 1997 (COMMENCEMENT OF OPERATIONS) TO MARCH 31, 1997

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 1,147
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 234
Changes in operating assets and liabilities:
Tenant security deposit funds and other restricted cash......... (302)
Tenant receivables and deferred rent............................ (123)
Accounts payable and accrued expenses........................... 66
Tenant security deposits........................................ 302
Unearned rental income.......................................... 151
--------
Net cash provided by operating activities........................... 1,475
INVESTING ACTIVITIES
Purchase of rental properties....................................... (51,669)
FINANCING ACTIVITIES
Contributions from members.......................................... 51,709
Distributions to members............................................ (1,328)
--------
Net cash provided by financing activities........................... 50,381
Net increase in cash................................................ 187
Cash at beginning of period......................................... --
--------
Cash at end of period............................................... $ 187
========
</TABLE>

See accompanying notes.

F-47
<PAGE>

PW ACQUISITIONS I, LLC

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PW Acquisitions I, LLC, a Delaware limited liability company (the
"Company"), was formed on December 23, 1996, by PW Realty Partners LLC and
PaineWebber Real Estate Holdings, Inc. (collectively the "Owner") who own 99%
and 1% of the membership interests, respectively. The Company commenced
operations on January 13, 1997, and shall continue until December 31, 2040
unless terminated at a earlier date pursuant to the terms of the operating
agreement. The Company was formed to acquire, own and lease the following
Properties:

<TABLE>
<CAPTION>
ACQUISITION RENTABLE
PROPERTY NAME LOCATION PRICE ACQUISITION DATE SQUARE FEET
- ------------- -------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
14225 Newbrook Drive..... Chantilly, VA $32,439,000 January 13, 1997 248,186
1330 Piccard Drive....... Rockville, MD 14,333,000 January 15, 1997 131,511
1550 East Gude........... Rockville, MD 4,897,000 January 24, 1997 44,500
----------- -------
$51,669,000 424,197
=========== =======
</TABLE>

Income of the Company is allocated in accordance with each member's
respective percentage interests. To the extent any allocation of losses causes
a deficit capital balance for any member, such allocation shall be reallocated
among the other members in accordance with their respective percentage
interest.

USE OF ESTIMATES

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

RENTAL PROPERTIES

Maintenance and repairs are expensed as incurred. Major replacements and
betterments are capitalized and depreciated over their estimated useful lives.

Depreciation is computed on the straight-line method using an estimated life
of 40 years for building and improvements, and the term of the respective
lease for tenant improvements.

RESTRICTED CASH

Restricted cash consists of security deposit funds held on behalf of a
tenant at one of the properties.

F-48
<PAGE>

PW ACQUISITIONS I, LLC

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997

RENTAL INCOME

Rental income from leases with scheduled rent increases are recognized on a
straight-line basis over the lease term. Amounts currently recognized as
income, and expected to be received in later years, are included in
tenant receivables and deferred rent. Amounts received currently, but
recognized as income in future years, are included in unearned rent.

SALE AGREEMENT

The Company has an agreement with Alexandria Real Estate Equities, Inc.
("ARE") to sell all rights, title and interest in the Company to ARE at a
sales price based on an agreed-upon calculation upon consummation of the
initial public offering of ARE, but in no event later than September 30, 1998.

INCOME TAXES

The financial statements contain no provision for federal income taxes since
the taxable income from the Company is reported on the separate tax returns of
the members based on their allocable membership shares. The members are
responsible for including their share of taxable results of operations in
their respective federal income tax returns.

2. RENTAL PROPERTIES

Rental properties are as follows as of March 31, 1997:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Land....................................................... $ 8,375
Building and improvements.................................. 43,294
-------
51,669
Less accumulated depreciation.............................. (234)
-------
$51,435
=======
</TABLE>

The Company leases space, under noncancelable leases with remaining terms
ranging from 3 to 20 years. Certain tenants are also obligated to reimburse
the Company for specific operating expenses. Minimum lease payments to be
received under the terms of the operating lease agreements, excluding expense
reimbursements, as of January 13, 1997, (commencement of operations) are as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 5,997
1998....................................................... 6,264
1999....................................................... 6,281
2000....................................................... 6,343
2001....................................................... 5,820
Thereafter................................................. 77,489
--------
$108,194
========
</TABLE>

F-49
<PAGE>

PW ACQUISITIONS I, LLC

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997

3. COMMITMENTS AND CONTINGENCIES

CONCENTRATION OF CREDIT RISK

The Company maintains its cash at insured and uninsured financial
institutions. The combined insured account balances at each institution
periodically exceed FDIC insurance coverage, and, as a result, there is a
concentration of credit risk related to amounts on deposit in excess of FDIC
insurance coverage. Management believes that the risk is not significant.

The Company does not generally require collateral or other security from its
tenants, other than security deposits.

Pursuant to the terms of a management agreement, the Company's properties
are managed by ARE. For the period ended March 31, 1997, $65,000 in management
fees were paid to ARE by the Company.

F-50
<PAGE>

SCHEDULE III
PW ACQUISITIONS I, LLC

RENTAL PROPERTIES AND ACCUMULATED DEPRECIATION

MARCH 31, 1997
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)

<TABLE>
<CAPTION>
INITIAL COSTS TOTAL COSTS
-------------------- ----------------------------
SQUARE BUILDINGS AND BUILDINGS AND ACCUMULATED
PROPERTY NAME FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION ENCUMBRANCES YEAR BUILT
- ------------- ----------- ------ ------------- ------ ------------- ------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14225 Newbrook
Drive............... 248,186 $4,800 $27,639 $4,800 $27,639 $32,439 $151 -- 1992
1330 Piccard Drive... 131,511 2,800 11,533 2,800 11,533 14,333 63 -- 1978
1550 East Gude
Drive............... 44,500 775 4,122 775 4,122 4,897 20 -- 1981
------- ------ ------- ------ ------- ------- ---- ----
424,197 $8,375 $43,294 $8,375 $43,294 $51,669 $234 $--
======= ====== ======= ====== ======= ======= ==== ====
</TABLE>

A summary of activity of rental properties and
accumulated depreciation is as follows:

<TABLE>
<CAPTION>
RENTAL PROPERTIES
MARCH 31, 1997
-----------------
<S> <C>
Balance at beginning of period........................... $ --
Acquisition of land, building and improvements........... 51,669
-------
Balance at end of period................................. $51,669
=======
<CAPTION>
ACCUMULATED
DEPRECIATION
-----------------
<S> <C>
Balance at beginning of period........................... $ --
Depreciation expense..................................... 234
-------
Balance at end of period................................. $ 234
=======
</TABLE>

F-51
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDER-
WRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLIC-
ITATION IS UNLAWFUL.

---------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 18
The Company.............................................................. 32
Target Markets........................................................... 38
Distributions............................................................ 41
Use of Proceeds.......................................................... 45
Capitalization........................................................... 46
Dilution................................................................. 47
Selected Financial Data.................................................. 48
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 51
The Properties........................................................... 58
Policies with Respect to Certain Activities.............................. 73
Formation and Structure.................................................. 75
Management............................................................... 80
Certain Transactions..................................................... 88
Share Ownership.......................................................... 90
Description of Capital Stock............................................. 92
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws.................................................................. 95
Shares Eligible for Future Sale.......................................... 98
Federal Income Tax Considerations........................................ 99
Underwriting............................................................. 108
Legal Matters............................................................ 110
Experts.................................................................. 111
Additional Information................................................... 111
Glossary................................................................. 112
Index to Financial Statements............................................ F-1
</TABLE>

---------------

UNTIL JUNE 21, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SE-
CURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,750,000 SHARES

[LOGO OF ALEXANDRIA REAL ESTATE EQUITIES, INC.]

ALEXANDRIA REAL
ESTATE EQUITIES, INC.
COMMON STOCK

---------------

PROSPECTUS

---------------

PAINEWEBBER INCORPORATED
LEHMAN BROTHERS
SMITH BARNEY INC.
EVEREN SECURITIES, INC.

---------------
MAY 27, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

COVER

Inside front cover: Title Caption - ALEXANDRIA.

Map of the United States highlighting in green the states in which the
Properties are located, including California, Washington, Maryland, Washington,
D.C. and Virginia, with the major cities in or near which the Properties are
located, including San Diego, San Francisco, Seattle and Washington, D.C.,
marked with a star. Enlargements of each area with a red dot depicting the
location of each Property are included across the center of the map. A list of
Properties by city appears under the map.

GATEFOLD

Title Caption: ALEXANDRIA REAL ESTATE EQUITIES, INC.

Photograph depicting 3565 General Atomics Court, San Diego, California;
photograph depicting the Atrium at 11099 North Torrey Pines Road, San Diego,
California; photograph depicting improved laboratory space at 3535 General
Atomics Court, San Diego, California; photograph depicting 1401 Harbor Bay
Parkway, Alameda, California; photograph depicting 14225 Newbrook Drive,
Chantilly, Virginia; photograph depicting 25,35 and 45 West Watkins Mill Road,
Gaithersburg, Maryland; photograph depicting 10933 North Torrey Pines Road, San
Diego, California. Text at bottom of pictures reads: "The Company believes that
the pictorial representation herein, which includes 12 of the Company's 15
Properties, is representative of the Company's Properties and tenants. See "The
Properties" for square footage, Annualized Base Rent and Annualized Net
Effective Rent with respect to the Properties and tenants pictured."

Inside Back Cover: Title Caption: ALEXANDRIA.

Photograph depicting 401 Professional Drive, Gaithersburg, Maryland; photograph
depicting 1311 Harbor Bay Parkway, Alameda, California; photograph depicting
1330 Piccard Drive, Rockville, Maryland; photograph depicting 3535 General
Atomics Court, San Diego, California; photograph depicting improved laboratory
space of 1431 Harbor Bay Parkway, Alameda, California; photograph depicting 1102
and 1124 Columbia Street, Seattle, Washington.