The terms “we”, “our”, “ours” and “us” as used in this report refer to Alexandria Real Estate Equities, Inc. and its subsidiaries. The fol- lowing discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report. We are a publicly-traded real estate operating company focused principally on the ownership, operation, management, acquisition, expansion and selective redevelopment and development of high quality, strategically located properties containing a combination of office and laboratory space leased principally to tenants in the life science industry. We refer to these properties as “life science facilities”. In 2003, we: Our primary source of revenue is rental income and tenant recoveries from leases at the properties we own. Of the 89 properties we owned as of December 31, 2003, four were acquired in 1994, nine in 1996, nine in 1997, 27 in 1998, six in 1999, 11 in 2000, five in 2001, four in 2002 and four in 2003. In addition, we completed the development of one property in 1999, five properties in 2000 (together with the 11 properties acquired in 2000, the “2000 Properties”), two properties in 2001 (together with the five properties acquired in 2001, the “2001 Properties”) and two properties in 2002 (together with the four properties acquired in 2002, the “2002 Properties”). As a result of these acquisition and development activities, as well as our ongoing leasing and redevelopment activities, there have been significant increases in total revenues and expenses, including significant increases in total revenues and expenses for 2003 as compared to 2002, and for 2002 as compared to 2001. Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Our significant accounting policies are described in the notes to our consolidated financial statements. The preparation of these financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates, judgments and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We have elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations and financial results and the determination of various factual matters and circumstances not entirely within our control. We believe that our current REIT Compliance CRITICAL ACCOUNTING POLICIES OVERVIEW • Acquired four properties with an aggregate of approximately 263,000 rentable square feet. • Expanded our unsecured line of credit from $425 million to $440 million and extended its term to November 2006, which may be further extended at our sole option for an additional one-year period. • Obtained an unsecured term loan for $150 million that is due November 2008. • Sold three properties with an aggregate of approximately 289,000 rentable square feet. 19 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES