Alexandria Real Estate Equities, Inc. · NYSE:ARE

Alexandria Real Estate Equities — Q4 2017 Earnings Presentation

106 slides from Alexandria Real Estate Equities's earnings presentation, Jan 29, 2018

1. Slide 1: Alexandria Real Estate Equities, Inc.

   Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018

2. Slide 2: Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018

   Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018 i

3. Slide 3: Definitions and Reconciliations note

   (1) See “Definitions and Reconciliations” in our Supplemental Information. As of December 31, 2017, annual rental revenue from investment-grade tenants excluding large cap tenants and annual rental revenue from investment-grade tenants excluding large cap tenants within our top 20 tenants were 46% a

4. Slide 4: Table of Contents

   Table of Contents EARNINGS PRESS RELEASE Page Fourth Quarter and Year Ended December 31, 2017, Financial and Operating Results Acquisitions Dispositions Guidance Earnings Call Information and About the Company Consolidated Statements of Income Consolidated Balance Sheets Funds From Operations and Fu

5. Slide 5: Reports Fourth Quarter and Year Ended December 31, 2017 Results

   Alexandria Real Estate Equities, Inc. Reports Fourth Quarter and Year Ended December 31, 2017 , Financial and Operating Results Strong Internal and External Growth and Significant Strategic Acquisitions and Growing Dividends PASADENA, Calif. – January 29, 2018 – Alexandria Real Estate Equities, Inc.

6. Slide 6: Fourth Quarter and Year Ended December 31, 2017 Results (continued)

   Fourth Quarter and Year Ended December 31, 2017, Financial and Operating Results (continued) Items included in net income (loss) attributable to Alexandria’s common stockholders (amounts are shown after deducting any amounts attributable to noncontrolling interests): (In millions, except per share a

7. Slide 7: Building the Future of Life-Changing Innovation

   GA) ALEXANDRIA. — Building the Future of Life-Changing Innovation™

8. Slide 8: Acquisitions

   See our Fourth Quarter and Year Ended December 31, 2017 Earnings Press Release and Supplemental Information for additional information, non-GAAP measures, and definitions. Acquisitions

9. Slide 9: 4Q17 Acquisitions

   (Dollars in thousands) 4Q17 Acquisitions Property Submarket/Market Date of Purchase Number of Properties Occupancy Square Footage Purchase Price Operating Development/Redevelopment 701 Gateway Boulevard (1) South San Francisco/San Francisco 12/19/17 90.6% 170,862 — $ 76,000 Menlo Gateway (unconsolid

10. Slide 10: Building the Future of Life-Changing Innovation

    GA) ALEXANDRIA. — Building the Future of Life-Changing Innovation™

11. Slide 11: Dispositions

    (1) Includes our share of investment in real estate joint venture working capital. (2) The joint venture is in process of obtaining non-recourse construction financing for the development project for Phase II of our Menlo Gateway joint venture. Dispositions

12. Slide 12: Dispositions

    (Dollars in thousands) Property/Market/Submarket Date of Sale RSF Net Operating Income (1) Net Operating Income (Cash Basis) (1) Contractual Sales Price Gain 360 Longwood Avenue/Greater Boston/Longwood Medical Area 7/6/17 203,090 $ 4,313 $ 4,168 $ 65,701 $ 14,106 9625 Towne Centre Drive/San Diego/Un

13. Slide 13: 2018 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

14. Slide 14: Earnings Call Information and About the Company

    Earnings Call Information and About the Company We will host a conference call on Tuesday , January 30, 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 fourth quarter and year ended December

15. Slide 15: Consolidated Statements of Income

    (In thousands, except per share amounts) Three Months Ended Year Ended 12/31/17 9/30/17 6/30/17 3/31/17 12/31/16 12/31/17 12/31/16 Revenues: Rental $ 228,025 $ 216,021 $ 211,942 $ 207,193 $ 187,315 $ 863,181 $ 673,820 Tenant recoveries 70,270 67,058 60,470 61,346 58,270 259,144 223,655 Other income

16. Slide 16: Consolidated Balance Sheets

    (In thousands) 12/31/17 9/30/17 6/30/17 3/31/17 12/31/16 Assets Investments in real estate $ 10,298,019 $ 10,046,521 $ 9,819,413 $ 9,470,667 $ 9,077,972 Investments in unconsolidated real estate joint ventures 110,618 33,692 58,083 50,457 50,221 Cash and cash equivalents 254,381 118,562 124,877 151,

17. Slide 17: Funds From Operations and FFO per Share

    (In thousands, except per share amounts) The following tables present a reconciliation of net income (loss) attributable to Alexandria’s common stockholders, the most directly comparable financial measure presented in accordance with generally accepted accounting principles (“GAAP”), including our s

18. Slide 18: 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 $17.9 billion and an asset base in North A

19. Slide 19: 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) 396-4828 Pasadena, California 91101 7.00% Series D preferred stock: ARE PRD Email: corporateinformation@are.com Web: www.are.

20. Slide 20: 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

21. Slide 21: 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 December 31, 2017 . (2) Leading technology entities represent investment-grade or large cap (public or private) entiti

22. Slide 22: 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

23. Slide 23: Class A Properties in AAA Locations share of revenue

    80% of ARE’s Annual Rental Revenue (1) Percentage of ARE’s Annual Rental Revenue (1) (1) Represents annual rental revenue in effect as of December 31, 2017 .

24. Slide 24: Occupancy

    Occupancy Solid Demand for Class A Properties in AAA Locations Drives Solid Occupancy Solid Historical Occupancy (1) Occupancy across Key Locations

25. Slide 25: Occupancy of Operating Properties

    95% Over 10 Years Occupancy of Operating Properties as of December 31, 2017 (1) Average occupancy of operating properties in North America as of each December 31 for the last 10 years. Financial and Asset Base Highlights

26. Slide 26: Financial and Asset Base Highlights

    (Dollars in thousands, except per share amounts) Three Months Ended (unless stated otherwise) 12/31/17 9/30/17 6/30/17 3/31/17 12/31/16 Selected financial data from consolidated financial statements and related information Adjusted EBITDA – quarter annualized $ 817,392 $ 773,828 $ 755,048 $ 723,764

27. Slide 27: Financial and Asset Base Highlights (continued)

    (Dollars in thousands, except annual rental revenue per occupied RSF amounts) Three Months Ended (unless stated otherwise) 12/31/17 9/30/17 6/30/17 3/31/17 12/31/16 Amounts included in funds from operations and non-revenue-enhancing capital expenditures Straight-line rent revenue $ 33,281 $ 20,865 $

28. Slide 28: Key Operating Metrics

    Key Operating Metrics Favorable Lease Structure (1) Same Property Net Operating Income Growth

29. Slide 29: Same Property Net Operating Income Growth

    4.7% 1.3% 2015 2016 2017

30. Slide 30: Favorable Lease Structure

    Stable cash flows Percentage of triple net leases 97% Increasing cash flows Percentage of leases containing annual rent escalations 95% Lower capex burden Percentage of leases providing for the recapture of capital expenditures 94% Margins (2) Rental Rate Growth: Renewed/Re-Leased Space

31. Slide 31: Rental Rate Growth

    27.6% 25.1% 2015 2016 2017

32. Slide 32: Adjusted EBITDA Margins

    Adjusted EBITDA Operating 68% 71% (1) Percentages calculated based on RSF as of December 31, 2017 . (2) Represents the three months ended December 31, 2017 . Same Property Performance

33. Slide 33: Same Property Performance

    (Dollars in thousands) Same Property Financial Data 4Q17 Same Property Statistical Data 4Q17 Percentage change over comparable period from prior year: Number of same properties Net operating income increase 4.5% 3.1% Rentable square feet 15,177,562 14,414,434 Net operating income increase (cash basi

34. Slide 34: Leasing Activity

    Leasing Activity Three Months Ended Year Ended Year Ended (Dollars per RSF) 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 24.8% 10.4% 25.1% 12.7% 27.6% 12.0% Ne

35. Slide 35: 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) 1,282,567 6.6 % $ 41.57 5.8 % 1,349,444 6.9 % $ 40.34 5.9 % 1,682,954 8.6 % $ 38.27 7.0 % 1,741,892 8.9 % $ 41.83 7.9 % 1,429,544 7.3 %

36. Slide 36: Top 20 Tenants

    (Dollars in thousands) 84% of Top 20 Annual Rental Revenue from Investment-Grade or Large Cap Tenants Tenant Remaining Lease Term in Years (1) Aggregate RSF Annual Rental Revenue (1) Percentage of Aggregate Annual Rental Revenue (1) Investment-Grade Ratings Moody’s S&P Illumina, Inc. 12.6 891,495 $

37. Slide 37: 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 6,135,551 255,155 59,173 6,449,879 % $ 356,178 % $ 61.05 San Francisco 4,604,736 1,0

38. Slide 38: Property Listing

    (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

39. Slide 39: Property Listing (continued)

    (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 409 and 499 Illinois Street (consolidated joint venture – 60% ownersh

40. Slide 40: Property Listing (continued)

    (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 $ 17,352 100.0 % 100.0 % 3215 Merryfield Row

41. Slide 41: Property Listing (continued)

    (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 $ 14,803 98.0 % 98.0 % 1201 and 1208

42. Slide 42: Property Listing (continued)

    (Dollars in thousands) Market / Submarket / Address RSF Number of Properties Annual Rental Revenue Occupancy Percentage Operating Operating and Redevelopment Operating Development Redevelopment Total Research Triangle Park Research Triangle Park Alexandria Technology Center ® – Alston 186,870 — — 18

43. Slide 43: Disciplined Management of Ground-Up Developments

    Disciplined Management of Ground-Up Developments

44. Slide 44: Pre-leased percentage at commencement of vertical construction

    Represents pre-leased percentage at commencement of vertical construction since January 1, 2008. Investments in Real Estate

45. Slide 45: Investments in Real Estate

    (Dollars in thousands) Investments in Real Estate Square Feet Consolidated Unconsolidated (1) Total Investments in real estate: Rental properties $ 11,092,815 19,799,496 462,704 20,262,200 Development and redevelopment of new Class A properties: Undergoing construction – target delivery in 2018–2020

46. Slide 46: 2017 Deliveries: Binney Street, Townsend Street, Brannan Street

    100 Binney Street 510 Townsend Street 505 Brannan Street, Phase I Greater Boston/Cambridge San Francisco/Mission Bay/SoMa San Francisco/Mission Bay/SoMa 341,776 RSF 295,333 RSF 148,146 RSF Bristol-Myers Squibb Company Facebook, Inc. Stripe, Inc. Pinterest, Inc.

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49. Slide 49: 2017 Deliveries: ARE Spectrum, Illumina Parking Structure, Dexter Avenue

    ARE Spectrum 5200 Illumina Way, Parking Structure 400 Dexter Avenue North San Diego/Torrey Pines San Diego/University Town Center Seattle/Lake Union 336,461 RSF N/A 290,111 RSF The Medicines Company Celgene Corporation Wellspring Biosciences LLC Vertex Pharmaceuticals Incorporated Illumina, Inc. Jun

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52. Slide 52: 2017 Deliveries (continued)

    RSF represents the cumulative RSF placed into service as of 4Q17, including RSF that have been placed into service prior to January 1, 2017. Development and Redevelopment of New Class A Properties: 2017 Deliveries (continued)

53. Slide 53: 2017 Deliveries project details and yields

    (Dollars in thousands) Property/Market/Submarket Our Ownership Interest Date Delivered RSF in Service Total Project Unlevered Yields Prior to 1/1/17 Placed into Service Total Initial Stabilized Initial Stabilized Cash Basis 1Q17 2Q17 3Q17 4Q17 Leased RSF Investment Consolidated development projects

54. Slide 54: Projects Undergoing Construction

    100 Binney Street 399 Binney Street 266 and 275 Second Avenue 1655 and 1715 Third Street Greater Boston/Cambridge Greater Boston/Cambridge Greater Boston/Route 128 San Francisco/Mission Bay/SoMa 91,155 RSF 164,000 RSF 59,173 RSF 580,000 RSF Foghorn Therapeutics, Inc. Sigilon Therapeutics, Inc. Tango

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58. Slide 58: Projects Undergoing Construction: East Grand Avenue, Gateway Boulevard

    213 East Grand Avenue 279 East Grand Avenue 201 Haskins Way 681 Gateway Boulevard San Francisco/South San Francisco San Francisco/South San Francisco San Francisco/South San Francisco San Francisco/South San Francisco 300,930 RSF 199,000 RSF 280,000 RSF 126,971 RSF Merck & Co., Inc. Multi-Tenant Mar

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62. Slide 62: 2018–2020 Deliveries: Projects Undergoing Construction and Near-Term Projects

    Development and Redevelopment of New Class A Properties: 2018–2020 Deliveries (Projects Undergoing Construction and Near-Term Projects Undergoing Marketing and Pre-Construction)

63. Slide 63: Menlo Gateway, Industrial Road, 9625 Towne Centre Drive

    Menlo Gateway 825 and 835 Industrial Road 9625 Towne Centre Drive San Francisco/Greater Stanford San Francisco/Greater Stanford San Diego/University Town Center 520,988 RSF 530,000 RSF 163,648 RSF Facebook, Inc. Marketing Takeda Pharmaceutical Company Ltd.

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66. Slide 66: 9880 Campus Point, 1818 Fairview, 9900 Medical Center, 5 Laboratory Drive

    9880 Campus Point Drive 1818 Fairview Avenue East 9900 Medical Center Drive 5 Laboratory Drive San Diego/University Town Center Seattle/Lake Union Maryland/Rockville Research Triangle Park/RTP 71,510 RSF 205,000 RSF 45,039 RSF 175,000 RSF Marketing Multi-Tenant Marketing Multi-Tenant

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70. Slide 70: 2018–2020 Deliveries (continued)

    Development and Redevelopment of New Class A Properties: 2018–2020 Deliveries (Projects Undergoing Construction and Near-Term Projects Undergoing Marketing and Pre-Construction) (continued)

71. Slide 71: Development and Redevelopment: Leasing and Timing

    of our Earnings Press Release for additional information on our partial interest sale at 9625 Towne Centre Drive. Earnings Press Release See page 4 of our Earnings Press Release for additional information. Property/Market/Submarket Our Ownership Interest Project RSF Percentage Project Start Occupanc

72. Slide 72: Development and Redevelopment: Costs and Yields

    Earnings Press Release Earnings Press Release Earnings Press Release (Dollars in thousands) Our Ownership Interest Unlevered Yields Property/Market/Submarket In Service CIP Cost to Complete Total at Completion Initial Stabilized Initial Stabilized (Cash Basis) Consolidated developments under constru

73. Slide 73: Intermediate-Term Developments: Binney Street, Bluxome, Brannan Phase II

    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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78. Slide 78: 5200 Illumina Way, Campus Point, Eastlake, 9800 Medical Center

    5200 Illumina Way Campus Point Drive 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 180,000 R

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83. Slide 83: Development and Redevelopment: Summary of Pipeline

    Development and Redevelopment of New Class A Properties: Summary of Pipeline

84. Slide 84: Pipeline by Property: Greater Boston

    Earnings Press Release Earnings Press Release (Dollars in thousands) Property/Submarket Our Ownership Interest Book Value Square Footage Development Projects Undergoing Construction Near-Term Projects Undergoing Marketing and Pre-Construction Intermediate- Term Development Future Development Total (

85. Slide 85: Pipeline by Property: San Diego, Seattle and Others

    (Dollars in thousands) Property/Submarket Our Ownership Interest Book Value Square Footage Development Projects Undergoing Construction Near-Term Projects Undergoing Marketing and Pre-Construction Intermediate- Term Development Future Development Total (1) San Diego Undergoing construction 9625 Town

86. Slide 86: Building the Future of Life-Changing Innovation

    GA) ALEXANDRIA. — Building the Future of Life-Changing Innovation™

87. Slide 87: Sustainability Certifications

    (1) Upon completion of 12 LEED ® certification projects in process. (2) Upon completion of 3 WELL ® certification projects in process. (3) Upon completion of 8 Fitwel ® certification projects in process. Construction Spending

88. Slide 88: Construction Spending

    (Dollars in thousands, except per RSF amounts) Construction Spending Year Ended Additions to real estate – consolidated projects $ 893,685 Investments in unconsolidated real estate joint ventures 17,876 Construction spending (cash basis) (1) 911,561 Decrease in accrued construction (11,034 ) Constru

89. Slide 89: Real Estate Joint Ventures

    Earnings Press Release of our Earnings Press Release for additional information on our partial interest sale at 9625 Towne Centre Drive. (Dollars in thousands) Consolidated Real Estate Joint Ventures Unconsolidated Real Estate Joint Ventures Property/Market/Submarket Noncontrolling Interest Share (1

90. Slide 90: Investments

    Investments Public/Private Mix (Cost) Tenant/Non-Tenant Mix (Cost)

91. Slide 91: Public/Private Investment Mix

    Public 87% Private

92. Slide 92: Investments (in millions)

    Investments (in millions) Public investments: Cost basis $ Holdings Net unrealized gains $1.8M Private investments $ Average Investment Amount

93. Slide 93: Key Credit Metrics

    Key Credit Metrics Net Debt to Adjusted EBITDA (1) Net Debt and Preferred Stock to Adjusted EBITDA (1)

94. Slide 94: Net Debt to Adjusted EBITDA

    6.1x <5.5x 4Q16 4Q17 4Q18 and Thereafter

95. Slide 95: Fixed-Charge Coverage Ratio and Liquidity

    Fixed-Charge Coverage Ratio (1) Liquidity (2)

96. Slide 96: Liquidity

    $2.0B (in millions) Availability under our $1.65 billion unsecured senior line of credit $ 1,600 Remaining construction loan commitment Available-for-sale equity securities, at fair value Cash, cash equivalents, and restricted cash $ 2,011 (1) Quarter annualized. (2) As of December 31, 2017 .

97. Slide 97: Summary of Debt

    Summary of Debt Debt maturities chart (In millions)

98. Slide 98: Fixed-Rate and Variable-Rate Debt

    (1) Includes our secured construction loan for our property at 50 and 60 Binney Street in our Cambridge submarket with aggregate commitments of $350.0 million . We have two one -year options to extend the stated maturity date to January 28, 2021, subject to certain conditions. Our guidance on page 7

99. Slide 99: Debt Maturities and Principal Payments

    (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 % 3.22 % 1/28/19 (3) $ — $ 325

100. Slide 100: Unconsolidated Real Estate Joint Ventures' Debt

     (Dollars in thousands) Unconsolidated Real Estate Joint Ventures’ Debt Unconsolidated Joint Venture Our Share Initial Maturity Date Extension Option Maturity Date (1) Interest Rate (2) Debt Balance (3) Remaining Commitments 360 Longwood Avenue 27.5% 9/1/22 9/1/24 3.54 % $ 94,040 $ 17,000 (4) 1401/14

101. Slide 101: Definitions and Reconciliations

     Definitions and Reconciliations This section contains additional information for sections throughout this Supplemental Information package, as well as explanations and reconciliations of certain non-GAAP financial measures and the reasons why we use these supplemental measures of performance and bel

102. Slide 102: Definitions and Reconciliations (continued)

     Definitions and Reconciliations (continued) Development, redevelopment, and pre-construction A key component of our business model is our disciplined allocation of capital to the development and redevelopment of new Class A properties located in world-class collaborative life science and technology

103. Slide 103: 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

104. Slide 104: Definitions and Reconciliations (continued)

     Definitions and Reconciliations (continued) Net cash provided by operating activities after dividends Net cash provided by operating activities after dividends includes the deduction for distributions to noncontrolling interests. For purposes of this calculation, changes in operating assets and liab

105. Slide 105: Definitions and Reconciliations (continued)

     Definitions and Reconciliations (continued) net operating income because we do not consider impairments of real estate to be property-level operating expenses. Impairments of real estate relate to changes in the values of our assets and do not reflect the current operating performance with respect t

106. Slide 106: Definitions and Reconciliations (continued)

     Definitions and Reconciliations (continued) Total market capitalization Total market capitalization is equal to the sum of total equity market capitalization and total debt. Unencumbered net operating income as a percentage of total net operating income Unencumbered net operating income as a percent

Alexandria Real Estate Equities — Q4 2017 Earnings Presentation on 6ix