Alexandria Real Estate Equities, Inc. · NYSE:ARE
Alexandria Real Estate Equities — Q2 2018 Earnings Presentation
109 slides from Alexandria Real Estate Equities's earnings presentation, Jul 30, 2018
Slide 1: Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018
Slide 2: Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018 i
Slide 3: (1) See “Definitions and Reconciliations” in our Supplemental Information for additional information. As of
(1) See “Definitions and Reconciliations” in our Supplemental Information for additional information. As of June 30, 2018, annual rental revenue from only investment-grade tenants within our overall tenant base and within our top 20 tenants was 46% and 72%, respectively. ii
Slide 4: Table of Contents
Table of Contents EARNINGS PRESS RELEASE Page Second Quarter Ended June 30, 2018, Financial and Operating Results Sustainability Acquisitions Guidance Earnings Call Information and About the Company Consolidated Statements of Income Consolidated Balance Sheets Funds From Operations and Funds From Op
Slide 5: Second Quarter 2018 Financial and Operating Results
205,000 RSF, 12% leased and 12% negotiating, at 1818 Fairview Avenue East in our Lake Union submarket. Alexandria Real Estate Equities, Inc. Reports Second Quarter Ended June 30, 2018 , Financial and Operating Results Strong Internal and External Growth, Operational Excellence and Growing Dividends
Slide 6: Second Quarter Ended June 30, 2018 Results (continued)
Second Quarter Ended June 30, 2018, Financial and Operating Results (continued) Completed strategic acquisitions Acquisitions completed: • In 2Q18 and July 2018, we acquired 14 properties and four land parcels for an aggregate purchase price of $662.9 million in key submarkets. These acquisitions co
Slide 7: Corporate responsibility and industry leadership
Second Quarter Ended June 30, 2018, Financial and Operating Results (continued) Corporate responsibility and industry leadership • Nareit CARE Gold Award Winner • 2018 recipient of the Nareit Gold Investor CARE (Communications and Reporting Excellence) Award in the Large Cap Equity REIT category as
Slide 8: Alexandria: Building the Future of Life-Changing Innovation
GA) ALEXANDRIA. — Building the Future of Life-Changing Innovation™
Slide 9: Sustainability certifications
(1) Upon completion of 10 LEED certification projects in process. (2) Upon completion of three WELL certification projects in process. (3) Upon completion of eight Fitwel certification projects in process. Acquisitions
Slide 10: Acquisitions
(Dollars in thousands) Property Submarket/Market Date of Purchase Number of Properties Operating Occupancy Square Footage Unlevered Yields Purchase Price Operating Operating with Future Redevelopment Future Development Initial Stabilized Initial Stabilized (Cash) Future Development 701 Dexter Avenue
Slide 11: Alexandria: Building the Future of Life-Changing Innovation
GA) ALEXANDRIA. — Building the Future of Life-Changing Innovation™
Slide 12: 219 East 42nd Street, New York City
ag — “nF ner Te Weatar hx ALEXANDRIA’S EXPANSION OF FIRST-IN-CLASS NEW YORK CITY CLUSTER 219 EAST 42ND STREET NEW YORK CITY, MANHATTAN (Rendering of Future Redevelopment) 10 Floors | 349,947 RSF | Office/Laboratory Space
Slide 13: Guidance
(Dollars in millions, except per share amounts) The following updated guidance is based on our current view of existing market conditions and assumptions for the year ending December 31, 2018. There can be no assurance that actual amounts will be materially higher or lower than these expectations. S
Slide 14: Earnings Call Information and About the Company
Earnings Call Information and About the Company We will host a conference call on Tuesday , July 31, 2018 , at 3:00 p.m. Eastern Time (“ET”)/ noon Pacific Time (“PT”), which is open to the general public to discuss our financial and operating results for the second quarter ended June 30, 2018 . To p
Slide 15: Consolidated Statements of Income
(In thousands, except per share amounts) Three Months Ended Six Months Ended 6/30/18 3/31/18 12/31/17 9/30/17 6/30/17 6/30/18 6/30/17 Revenues: Rental $ 250,635 $ 244,485 $ 228,025 $ 216,021 $ 211,942 $ 495,120 $ 419,135 Tenant recoveries 72,159 73,170 70,270 67,058 60,470 145,329 121,816 Other inco
Slide 16: Consolidated Balance Sheets
(In thousands) 6/30/18 3/31/18 12/31/17 9/30/17 6/30/17 Assets Investments in real estate $ 11,190,771 $ 10,671,227 $ 10,298,019 $ 10,046,521 $ 9,819,413 Investments in unconsolidated real estate joint ventures 192,972 169,865 110,618 33,692 58,083 Cash and cash equivalents 287,029 221,645 254,381 1
Slide 17: Funds From Operations
(In thousands) The following table presents a reconciliation of net income attributable to Alexandria’s common stockholders, the most directly comparable financial measure presented in accordance with generally accepted accounting principles (“GAAP”), including our share of amounts from consolidated
Slide 18: Funds From Operations per Share
(In thousands, except per share amounts) The following table presents a reconciliation of net income per share attributable to Alexandria’s common stockholders, the most directly comparable financial measure presented in accordance with GAAP, including our share of amounts from consolidated and unco
Slide 19: Company Profile
Company Profile Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500 ® company, is an urban office REIT uniquely focused on collaborative life science and technology campuses in AAA innovation cluster locations, with a total market capitalization of $18.8 billion and an asset base in North A
Slide 20: Investor Information
Investor Information Corporate Headquarters New York Stock Exchange Trading Symbols Information Requests 385 East Colorado Boulevard, Suite 299 Common stock: ARE Phone: (626) 578-0777 Pasadena, California 91101 7.00% Series D preferred stock: ARE PRD Email: corporateinformation@are.com Web: www.are.
Slide 21: High-Quality, Diverse, and Innovative Tenants
High-Quality, Diverse, and Innovative Tenants Cash Flows from High-Quality, Diverse, and Innovative Tenants Investment-Grade or Large Cap Tenants Tenant Mix
Slide 22: A REIT Industry-Leading Tenant Roster
55% of ARE’s Total Annual Rental Revenue (1) A REIT Industry-Leading Tenant Roster Percentage of ARE’s Annual Rental Revenue (1) (1) Represents annual rental revenue in effect as of June 30, 2018 . (2) Leading Technology Entities are technology companies with an investment-grade credit rating, or a
Slide 23: Class A Properties in AAA Locations
Class A Properties in AAA Locations High-Quality Cash Flows from Class A Properties in AAA Locations Class A Properties in AAA Locations AAA Locations
Slide 24: Percentage of annual rental revenue from Class A properties in AAA locations
78% of ARE’s Annual Rental Revenue (1) Percentage of ARE’s Annual Rental Revenue (1) (1) Represents annual rental revenue in effect as of June 30, 2018 .
Slide 25: Occupancy
Occupancy Solid Demand for Class A Properties in AAA Locations Drives Solid Occupancy Solid Historical Occupancy (1) Occupancy across Key Locations
Slide 26: Occupancy of Operating Properties
96% Over 10 Years Occupancy of Operating Properties as of June 30, 2018 (1) Average occupancy of operating properties in North America as of each December 31 for the last 10 years and as of June 30, 2018 . Financial and Asset Base Highlights
Slide 27: Financial and Asset Base Highlights
(Dollars in thousands, except per share amounts) Three Months Ended (unless stated otherwise) 6/30/18 3/31/18 12/31/17 9/30/17 6/30/17 Selected financial data from consolidated financial statements and related information Adjusted EBITDA – quarter annualized $ 911,284 $ 914,444 $ 817,392 $ 773,828 $
Slide 28: Financial and Asset Base Highlights (continued)
(Dollars in thousands, except annual rental revenue per occupied RSF amounts) Three Months Ended (unless stated otherwise) 6/30/18 3/31/18 12/31/17 9/30/17 6/30/17 Amounts included in funds from operations and non-revenue-enhancing capital expenditures Straight-line rent revenue $ 23,259 $ 32,631 $
Slide 29: Key Operating Metrics
Key Operating Metrics Favorable Lease Structure (1) Same Property Net Operating Income Growth
Slide 30: Same Property Net Operating Income Growth
2016 2017 1H18
Slide 31: Favorable Lease Structure
Stable cash flows Percentage of triple net leases 97% Increasing cash flows Percentage of leases containing annual rent escalations 96% Lower capex burden Percentage of leases providing for the recapture of capital expenditures 95% Margins (2) Rental Rate Growth: Renewed/Re-Leased Space
Slide 32: Rental Rate Growth
2016 2017 1H18
Slide 33: Adjusted EBITDA Margins
Adjusted EBITDA Operating 69% 72% (1) Percentages calculated based on RSF as of June 30, 2018 . (2) Represents percentages for the three months ended June 30, 2018 . Same Property Performance
Slide 34: Same Property Performance
(Dollars in thousands) Same Property Financial Data 2Q18 1H18 Same Property Statistical Data 2Q18 1H18 Percentage change over comparable period from prior year: Number of same properties Net operating income increase 4.1% 4.1% Rentable square feet 17,585,507 17,353,037 Net operating income increase
Slide 35: Leasing Activity
(Dollars per RSF) Three Months Ended Six Months Ended Year Ended December 31, 2017 Including Straight-Line Rent Cash Basis Including Straight-Line Rent Cash Basis Including Straight-Line Rent Cash Basis Leasing activity: Renewed/re-leased space (1) Rental rate changes 24.0% 12.8% (2) 21.5% 13.8% (2)
Slide 36: Contractual Lease Expirations
Contractual Lease Expirations Year Number of Leases RSF Percentage of Occupied RSF Annual Rental Revenue (per RSF) (1) Percentage of Total Annual Rental Revenue (2) 617,160 3.0 % $ 47.21 2.9 % 1,307,904 6.3 % $ 40.83 5.4 % 1,873,964 9.0 % $ 37.61 7.1 % 1,731,707 8.3 % $ 41.09 7.2 % 1,605,142 7.7 % $
Slide 37: Top 20 Tenants
(Dollars in thousands, except market cap/private valuation amounts) 83% of Top 20 Annual Rental Revenue from Investment-Grade or Large Cap Tenants (1) Tenant Remaining Lease Term in Years (1) Aggregate RSF Annual Rental Revenue (1) Percentage of Aggregate Annual Rental Revenue (1) Investment-Grade C
Slide 38: Summary of Properties and Occupancy
(Dollars in thousands, except per RSF amounts) Summary of properties Market RSF Number of Properties Annual Rental Revenue Operating Development Redevelopment Total % of Total Total % of Total Per RSF Greater Boston 6,438,030 164,000 31,858 6,633,888 % $ 376,114 % $ 61.38 San Francisco 4,644,847 1,6
Slide 39: Property Listing: Greater Boston
(Dollars in thousands) Market / Submarket / Address RSF Number of Properties Annual Rental Revenue Occupancy Percentage Operating Operating and Redevelopment Operating Development Redevelopment Total Greater Boston Cambridge/Inner Suburbs Alexandria Center ® at Kendall Square 50, 60, 75/125, and 100
Slide 40: Property Listing: San Francisco
(Dollars in thousands) Market / Submarket / Address RSF Number of Properties Annual Rental Revenue Occupancy Percentage Operating Operating and Redevelopment Operating Development Redevelopment Total San Francisco Mission Bay/SoMa 1655 and 1725 Third Street (unconsolidated joint venture – 10% owners
Slide 41: Property Listing: San Diego
(Dollars in thousands) Market / Submarket / Address RSF Number of Properties Annual Rental Revenue Occupancy Percentage Operating Operating and Redevelopment Operating Development Redevelopment Total San Diego Torrey Pines ARE Spectrum 336,461 — — 336,461 $ 17,388 100.0 % 100.0 % 3215 Merryfield Row
Slide 42: Property Listing: Seattle
(Dollars in thousands) Market / Submarket / Address RSF Number of Properties Annual Rental Revenue Occupancy Percentage Operating Operating and Redevelopment Operating Development Redevelopment Total Seattle Lake Union 400 Dexter Avenue North 290,111 — — 290,111 $ 15,077 100.0 % 100.0 % 1818 Fairvie
Slide 43: Property Listing: Maryland and Research Triangle Park
(Dollars in thousands) Market / Submarket / Address RSF Number of Properties Annual Rental Revenue Occupancy Percentage Operating Operating and Redevelopment Operating Development Redevelopment Total Maryland (continued) Beltsville 8000/9000/10000 Virginia Manor Road 191,884 — — 191,884 $ 2,462 98.4
Slide 44: Disciplined Management of Ground-Up Developments
Disciplined Management of Ground-Up Developments
Slide 45: Ground-Up Developments Since 2008
(1) Represents developments commenced since January 1, 2008, comprising 28 projects aggregating 7.1 million RSF. (2) Represents annual rental revenue on ground-up developments commenced since January 1, 2008, from tenants with investment-grade credit rating, or a 12-month average reported market cap
Slide 46: Investments in Real Estate
(Dollars in thousands) Investments in Real Estate Square Feet Operating Construction Pre-Construction Intermediate-Term & Future Projects Total Investments in real estate: Rental properties: Consolidated $ 11,882,062 21,038,347 — — — 21,038,347 Unconsolidated (1) N/A 484,449 — — — 484,449 11,882,062
Slide 47: Recently Delivered Projects
100 Binney Street 266 and 275 Second Avenue 510 Townsend Street Greater Boston/Cambridge Greater Boston/Route 128 San Francisco/Mission Bay/SoMa 432,931 RSF 27,315 RSF 295,333 RSF Bristol-Myers Squibb Company Facebook, Inc. Visterra, Inc. (1) Stripe, Inc.
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Slide 50: Recently Delivered Projects (continued)
505 Brannan Street, Phase I ARE Spectrum 400 Dexter Avenue North 5 Laboratory Drive San Francisco/Mission Bay/SoMa San Diego/Torrey Pines Seattle/Lake Union Research Triangle Park/RTP 148,146 RSF 336,461 RSF 290,111 RSF 33,181 RSF Pinterest, Inc. Celgene Corporation Vertex Pharmaceuticals Incorporat
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Slide 54: Placed into Service in the Last 12 Months (continued)
RSF represents the cumulative RSF placed into service. (1) In July 2018, Otsuka Pharmaceutical Co., Ltd. entered into a definitive agreement to acquire Visterra, Inc. The transaction is expected to be completed during the third quarter of 2018. As of July 17, 2018, Otsuka Pharmaceutical Co., Ltd. ha
Slide 55: Properties Placed into Service in the Last 12 Months
(Dollars in thousands) Property/Market/Submarket Our Ownership Interest Date Delivered RSF Placed into Service Operating Property Leased Percentage Total Project Unlevered Yields Initial Stabilized Initial Stabilized (Cash) Prior to 7/1/17 3Q17 4Q17 1Q18 2Q18 Total RSF Investment Consolidated develo
Slide 56: 2018 Deliveries
399 Binney Street 266 and 275 Second Avenue 9625 Towne Centre Drive Greater Boston/Cambridge Greater Boston/Route 128 San Diego/University Town Center 164,000 RSF 31,858 RSF 163,648 RSF Rubius Therapeutics, Inc. Relay Therapeutics, Inc. Celsius Therapeutics, Inc. Marketing Takeda Pharmaceutical Comp
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Slide 59: 5 Laboratory Drive
5 Laboratory Drive Research Triangle Park/RTP 141,819 RSF Boragen, Inc. Indigo Ag, Inc. AgTech Accelerator Corporation Multi-Tenant/Marketing
Slide 60: New Class A Properties: 2019 Deliveries
501,325 RSF 75% Leased New Class A Development and Redevelopment Properties: 2019 Deliveries
Slide 61: 2019 Deliveries
213 East Grand Avenue 9900 Medical Center Drive 279 East Grand Avenue Alexandria PARC 1818 Fairview Avenue East San Francisco/South San Francisco Maryland/Rockville San Francisco/South San Francisco San Francisco/Greater Stanford Seattle/Lake Union 300,930 RSF 45,039 RSF 211,405 RSF 48,547 RSF 205,0
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Slide 66: 2019 Deliveries (continued)
681 Gateway Boulevard 704 Quince Orchard Road Menlo Gateway 1655 and 1725 Third Street San Francisco/South San Francisco Maryland/Gaithersburg San Francisco/Greater Stanford San Francisco/Mission Bay/SoMa 126,971 RSF 58,186 RSF 520,988 RSF 593,765 RSF 2,110,831 RSF Twist Bioscience Corporation Multi
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Slide 70: New Class A Properties: 2020 Deliveries
86% Leased New Class A Development and Redevelopment Properties: 2020 Deliveries
Slide 71: 2020 Deliveries
825 and 835 Industrial Road 201 Haskins Way San Francisco/Greater Stanford San Francisco/South San Francisco 530,000 RSF 280,000 RSF Multi-Tenant/Marketing Multi-Tenant/Marketing
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Slide 73: 9880 Campus Point Drive
9880 Campus Point Drive San Diego/University Town Center 908,000 98,000 RSF Multi-Tenant/Marketing
Slide 74: New Class A Properties: 2018–2020 Deliveries
RSF Under Pre-Construction and Marketing New Class A Development and Redevelopment Properties: 2018–2020 Deliveries
Slide 75: New Class A Development and Redevelopment Properties
Property/Market/Submarket Dev/ Redev RSF Project Start CIP Percentage Occupancy (1) In Service Construction Pre-construction Total Total Project Leased Leased/Negotiating Initial Stabilized 2018 deliveries: consolidated projects 266 and 275 Second Avenue/Greater Boston/Route 128 Redev 171,899 31,858
Slide 76: Cost to Complete and Unlevered Yields
Our Ownership Interest Cost to Complete Unlevered Yields Property/Market/Submarket In Service CIP Construction Loan ARE Funding Total at Completion Initial Stabilized Initial Stabilized (Cash) 2018 deliveries: consolidated projects 266 and 275 Second Avenue/Greater Boston/Route 128 % $ 73,527 $ 9,97
Slide 77: Intermediate-Term Development Projects
325 Binney Street 88 Bluxome Street 505 Brannan Street, Phase II 960 Industrial Road Alexandria Center ® for Life Science Greater Boston/Cambridge San Francisco/Mission Bay/SoMa San Francisco/Mission Bay/SoMa San Francisco/Greater Stanford New York City/Manhattan 208,965 RSF 1,070,925 RSF 165,000 RS
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Slide 82: Intermediate-Term Development Projects (continued)
5200 Illumina Way Campus Pointe by Alexandria 1150 Eastlake Avenue East 1165/1166 Eastlake Avenue East 9800 Medical Center Drive San Diego/University Town Center San Diego/University Town Center Seattle/Lake Union Seattle/Lake Union Maryland/Rockville 386,044 RSF 318,383 RSF 260,000 RSF 106,000 RSF
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Slide 87: Summary of Pipeline
New Class A Development and Redevelopment Properties: Summary of Pipeline
Slide 88: Development Pipeline Detail
(Dollars in thousands) Property/Submarket Our Ownership Interest Book Value Square Footage Projected Deliveries Intermediate- Term Development Future Development/Redevelopment Total (1) Greater Boston Undergoing construction 399 Binney Street (Alexandria Center ® at One Kendall Square)/Cambridge % $
Slide 89: Development Pipeline Detail (continued)
(Dollars in thousands) Property/Submarket Our Ownership Interest Book Value Square Footage Projected Deliveries Intermediate- Term Development Future Development/Redevelopment Total (1) San Diego Undergoing construction or pre-construction 9625 Towne Centre Drive/University Town Center 50.1 % $ 65,5
Slide 90: Construction Spending
(Dollars in thousands, except per RSF amounts) Six Months Ended Construction Spending Additions to real estate – consolidated projects $ 431,225 Investments in unconsolidated real estate joint ventures 44,486 Construction spending (cash basis) (1) 475,711 Increase in accrued construction 48,074 Cons
Slide 91: Real Estate Joint Ventures
(Dollars in thousands) Consolidated Real Estate Joint Ventures (controlled by us through contractual rights or majority voting rights) Unconsolidated Real Estate Joint Ventures (controlled jointly or by our JV partners through contractual rights or majority voting rights) Property/Market/Submarket N
Slide 92: Investments
(Dollars in thousands) On January 1, 2018, we adopted a new accounting standard that requires us, on a prospective basis, to present our equity investments at fair value whenever fair value (or NAV) is readily available. For investments without readily available fair values, we adjust the cost basis
Slide 93: Tenant/Non-Tenant Mix (Cost)
Tenant/Non-Tenant Mix (Cost)
Slide 94: Holdings and Average Cost of Investment
$2.0M Holdings Average Cost of Investment
Slide 95: Key Credit Metrics
Key Credit Metrics Net Debt to Adjusted EBITDA (1) Net Debt and Preferred Stock to Adjusted EBITDA (1)
Slide 96: Net Debt to Adjusted EBITDA Goals
5.8x <5.5x 5.5x 4Q17 2Q18 4Q18 Goal
Slide 97: Fixed-Charge Coverage Ratio and Liquidity
Fixed-Charge Coverage Ratio (1) Liquidity (2)
Slide 98: Liquidity
$2.9B (in millions) Availability under our $1.65 billion unsecured senior line of credit $ 1,650 Outstanding forward equity sales agreements Cash, cash equivalents, and restricted cash Investments in publicly traded companies Remaining construction loan commitments $ 2,896 (1) Quarter annualized. (2
Slide 99: Summary of Debt
Summary of Debt Debt maturities chart (In millions)
Slide 100: Fixed-Rate/Hedged and Unhedged Variable-Rate Debt
(1) Includes our secured construction loan for our property at 50 and 60 Binney Street in our Cambridge submarket with an outstanding balance of $334.4 million as of June 30, 2018 . In July 2018, we completed a partial repayment of $150.0 million on this secured construction loan. We have two one -y
Slide 101: Debt Schedule
(Dollars in thousands) Debt Stated Rate Interest Rate (1) Maturity Date (2) Principal Payments Remaining for the Periods Ending December 31, Principal Unamortized (Deferred Financing Cost), (Discount)/Premium Total Thereafter Secured notes payable Greater Boston L+1.50 % 3.82 % 1/28/19 (3) $ — $ 334
Slide 102: Unconsolidated Real Estate Joint Ventures' Debt
(Dollars in thousands) Unconsolidated real estate joint ventures’ debt 100% at JV Level Unconsolidated Joint Venture Our Share Maturity Date Stated Interest Rate (1) Interest Rate (1)(2) Debt Balance (3) Remaining Commitments Menlo Gateway, Phase I 29.4 % (4) 3/1/19 L+2.50% 4.49 % $ 134,564 $ 13,290
Slide 103: Definitions and Reconciliations
Definitions and Reconciliations This section contains additional information for sections throughout this Supplemental Information package and the accompanying earnings press release, as well as explanations and reconciliations of certain non-GAAP financial measures and the reasons why we use these
Slide 104: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Class A properties and AAA locations Class A properties are properties clustered in AAA locations that provide innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class t
Slide 105: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Funds from operations and funds from operations, as adjusted, attributable to Alexandria’s common stockholders GAAP-basis accounting for real estate assets utilizes historical cost accounting and assumes that real estate values diminish over time. In an ef
Slide 106: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) • One time adjustments recognized on January 1, 2018: • For investments in publicly traded companies, reclassification of cumulative unrealized gains and losses as of December 31, 2017, aggregating $49.8 million , from accumulated other comprehensive incom
Slide 107: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Net debt to Adjusted EBITDA and net debt and preferred stock to Adjusted EBITDA Net debt to Adjusted EBITDA and net debt and preferred stock to Adjusted EBITDA are non-GAAP financial measures that we believe are useful to investors as supplemental measures
Slide 108: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) immediately apparent from net income. Net operating income can be used to measure the initial stabilized yields of our properties by calculating the quotient of net operating income generated by a property on a straight-line basis and our investment in the
Slide 109: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Stabilized occupancy date The stabilized occupancy date represents the estimated date on which the project is expected to reach occupancy of 95% or greater. Total equity market capitalization Total equity market capitalization is equal to the sum of outsta
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