Alexandria Real Estate Equities, Inc. · NYSE:ARE
Alexandria Real Estate Equities — Q3 2016 Earnings Presentation
97 slides from Alexandria Real Estate Equities's earnings presentation, Oct 31, 2016
Slide 1: Earnings Press Release and Supplemental Information, Third Quarter 2016
ALEXANDRIA REAL ESTATE EQUITIES, INC. EARNINGS PRESS RELEASE AND SUPPLEMENTAL INFORMATION ALEXANDRIA THIRD QUARTER ENDED SEPTEMBER 80, 2016 Building the Future of Life-Changing Innovation Unique Collaborative Science & Technology Campuses in Urban Innovation Clusters NYSE:ARE Ae in HU i i] Alexandri
Slide 2: Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2016
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2016 i
Slide 3: (1) As of September 30, 2016.
(1) As of September 30, 2016. (2) For the three months ended September 30, 2016. ii
Slide 4: Table of Contents
Table of Contents Page EARNINGS PRESS RELEASE Third Quarter Ended September 30, 2016, Financial and Operating Results Incremental Annual Net Operating Income from Development and Redevelopment Projects Dispositions Acquisitions Guidance Earnings Call Information and About the Company Consolidated St
Slide 5: Reports Third Quarter 2016 Financial and Operating Results
Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2016 Financial and Operating Results Solid 3Q16 Operating Results and Solid Internal and External Growth PASADENA, Calif. – October 31, 2016 – Alexandria Real Estate Equities, Inc. (NYSE:ARE) announced financial and oper
Slide 6: Third Quarter 2016 Financial and Operating Results
7.5 million • Executed an offering, subject to forward equity sales agreements, to sell an aggregate of 7.5 million shares of common stock, including 975,000 shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of our common stock, at a public offeri
Slide 7: Incremental Annual Net Operating Income from Development and Redevelopment Projects
Incremental Annual Net Operating Income from Development and Redevelopment Projects
Slide 8: Incremental Annual Net Operating Income; Dispositions
(1) Represents incremental annual net operating income upon stabilization of our development and redevelopment projects, including our share of real estate joint venture projects. RSF and percentage leased represent 100% of each property. Dispositions
Slide 9: Dispositions
(Dollars in thousands) Net Operating Income Net Operating Income (Cash) Classification Property/Market/Submarket Date of Sale RSF/Acres (1) (1) Construction Funding Asset Sales Dispositions completed and under contract: 16020 Industrial Drive/Maryland/Gaithersburg 4/21/16 71,000 RSF $ 1,022 $ $ — $
Slide 10: Acquisitions
executed an offering, subject to forward equity sales agreements, to sell an aggregate of 7.5 million shares of common stock, including 975,000 shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of our common stock, at a public offering price of $1
Slide 11: Torrey Ridge Science Center
Torrey Ridge Science Center Alexandria’s NEES: Collaborative Science & sie ra in Tene, Pines Me = S — cn diel TORREY RIDGE is ~ SCIENCE CENTER SS CS ae.
Slide 12: 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, 2016 . There can be no assurance that actual amounts will be materially higher or lower than these expectations.
Slide 13: Earnings Call Information and About the Company
Earnings Call Information and About the Company We will host a conference call on Tuesday , November 1, 2016 , 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 third quarter ended September 30, 2016
Slide 14: Consolidated Statements of Income
(In thousands, except per share amounts) Three Months Ended Nine Months Ended 9/30/16 6/30/16 3/31/16 12/31/15 9/30/15 9/30/16 9/30/15 Revenues: Rental $ 166,591 $ 161,638 $ 158,276 $ 158,100 $ 155,311 $ 486,505 $ 450,724 Tenant recoveries 58,681 54,107 52,597 54,956 56,119 165,385 154,107 Other inc
Slide 15: Consolidated Balance Sheets
(In thousands) 9/30/16 6/30/16 3/31/16 12/31/15 9/30/15 Assets Investments in real estate $ 7,939,179 $ 7,774,608 $ 7,741,466 $ 7,629,922 $ 7,527,738 Investments in unconsolidated real estate joint ventures 133,580 132,433 127,165 127,212 126,471 Cash and cash equivalents 157,928 256,000 146,197 125
Slide 16: 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 – basic, the most directly comparable financial measure presented in accordance with generally accepted accounting principles (“GAAP”), includi
Slide 17: Company Profile
Company Profile Alexandria Real Estate Equities, Inc. (NYSE:ARE) is an urban office REIT uniquely focused on world-class collaborative science and technology campuses in AAA innovation cluster locations, with a total market capitalization of $13.0 billion and an asset base in North America of 24.5 m
Slide 18: 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 6.45% Series
Slide 19: High-Quality, Diversified, and Innovative Tenants
High-Quality, Diversified, and Innovative Tenants Cash Flows from High-Quality, Diversified, and Innovative Tenants Top 20 Tenants All Tenants Investment-Grade Tenants Investment-Grade Tenants 78% 54% of Annualized Base Rent of Annualized Base Rent Long Remaining Lease Term High-Quality Tenant Base
Slide 20: Tenant Mix and Lease Term
Years (1) Office and tech office space represent 2.7% and 0.6% of total annualized base rent, respectively.
Slide 21: Class A Properties in AAA Locations
Class A Properties in AAA Locations High-Quality Cash Flows from Class A Properties in AAA Locations Key Locations
Slide 22: Class A Properties in AAA Locations
Class A Properties in AAA Locations 77% of ARE’s Total Annualized Base Rent % of ARE’s Total Annualized Base Rent
Slide 23: Occupancy
Occupancy Solid Demand for Class A Properties in AAA Locations Drives Solid Occupancy Occupancy of Operating Properties Across Key Locations as of September 30, 2016
Slide 24: Solid Historical Occupancy
Solid Historical Occupancy (1) 95% Over 10 Years (1) Average occupancy of operating properties in North America as of December 31 for the last 10 years, and as of September 30, 2016. Financial and Asset Base Highlights
Slide 25: Financial and Asset Base Highlights
(Dollars in thousands, except per share amounts) Three Months Ended (unless stated otherwise) 9/30/16 6/30/16 3/31/16 12/31/15 9/30/15 Selected financial data from consolidated financial statements and related information Adjusted EBITDA – quarter annualized $ 614,668 $ 601,048 $ 564,804 $ 586,064 $
Slide 26: Operating Information
(Dollars in thousands, except annualized base rent per occupied RSF amounts) Three Months Ended (unless stated otherwise) 9/30/16 6/30/16 3/31/16 12/31/15 9/30/15 Amounts included in funds from operations and non-revenue-enhancing capital expenditures Straight-line rent revenue $ 16,111 $ 2,430 $ 12
Slide 27: Key Operating Metrics
Key Operating Metrics Favorable Lease Structure (1) Same Property Net Operating Income Increase
Slide 28: Favorable Lease Structure
Percentage of triple net leases 97% Stable cash flows Percentage of leases containing annual rent escalations 95% Increasing cash flows Percentage of leases providing for the recapture of capital expenditures 95% Lower capex burden Margins (2) Rental Rate Increases: Renewed/Re-Leased Space
Slide 29: Rental Rate Increases
28.4% 2014 «2015 33Q16 YTD
Slide 30: Adjusted EBITDA Margins
Adjusted EBITDA Operating 67% 69% (1) Percentages calculated based on RSF. (2) Represents the three months ended September 30, 2016 .
Slide 31: Same Property Performance
Same Property Performance Same Property Financial Data 3Q16 YTD 3Q16 Same Property Statistical Data 3Q16 YTD 3Q16 Percentage change over comparable period from prior year: Number of same properties Net operating income increase 5.3% 5.0% Rentable square feet 14,472,593 13,642,226 Net operating incom
Slide 32: Same Property Comparison
(Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, $ Change % Change $ Change % Change Same properties $ 149,612 $ 142,370 $ 7,242 5.1 % $ 405,309 $ 390,386 $ 14,923 3.8 % Non-same properties 16,979 12,941 4,038 31.2 81,196 60,338 20,858 34.6 Total rental 166,591
Slide 33: Leasing Activity
Leasing Activity Three Months Ended Nine Months Ended Year Ended December 31, 2015 (Dollars are 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 28.2% 16.
Slide 34: Contractual Lease Expirations
Contractual Lease Expirations Year Number of Leases RSF Percentage of Occupied RSF Annualized Base Rent (per RSF) Percentage of Total Annualized Base Rent (1) 340,121 (1) 2.1 % (1) $ 41.85 (1) 2.1 % (1) 798,881 5.0 % $ 29.15 3.4 % 2,024,045 12.7 % $ 40.82 12.2 % 1,470,077 9.2 % $ 37.46 8.1 % 1,632,3
Slide 35: Top 20 Tenants
(Dollars in thousands) Top 20 Tenants: 78% of Annualized Base Rent from Investment-Grade Tenants Remaining Lease Term in Years (1) Aggregate RSF Percentage of Aggregate Annualized Base Rent Annualized Base Rent Investment-Grade Ratings Tenant Moody’s S&P Illumina, Inc. 13.7 891,495 $ 31,301 4.6 % —
Slide 36: Summary of Properties and Occupancy
(Dollars in thousands, except per RSF amounts) Summary of properties RSF Number of Properties Annualized Base Rent Market Operating Development Redevelopment Total % Total Total % of Total Per RSF Greater Boston 5,103,840 531,875 — 5,635,715 % $ 276,788 % $ 55.15 San Francisco 2,786,476 872,980 — 3,
Slide 37: Property Listing: Greater Boston
(Dollars in thousands) Occupancy Percentage RSF Number of Properties Annualized Base Rent Operating and Redevelopment Market / Submarket / Address Operating Development Redevelopment Total Operating Greater Boston Cambridge/Inner Suburbs Alexandria Center ® at Kendall Square 50/60, 75/125, and 100 B
Slide 38: Property Listing: San Francisco
(Dollars in thousands) Occupancy Percentage RSF Number of Properties Annualized Base Rent Operating and Redevelopment Market / Submarket / Address Operating Development Redevelopment Total Operating San Francisco Mission Bay/SoMa 409/499 Illinois Street (consolidated joint venture – 60% ownership) 4
Slide 39: Property Listing: San Diego
(Dollars in thousands) Occupancy Percentage RSF Number of Properties Annualized Base Rent Operating and Redevelopment Market / Submarket / Address Operating Development Redevelopment Total Operating San Diego Torrey Pines ARE Spectrum 102,938 233,523 — 336,461 $ 4,599 100.0 % 100.0 % 3215 Merryfield
Slide 40: Property Listing: Seattle
(Dollars in thousands) Occupancy Percentage RSF Number of Properties Annualized Base Rent Operating and Redevelopment Market / Submarket / Address Operating Development Redevelopment Total Operating Seattle Lake Union 400 Dexter Avenue North — 287,806 — 287,806 $ — — % — % 1201/1208 Eastlake Avenue
Slide 41: Property Listing: Research Triangle Park
(Dollars in thousands) Occupancy Percentage RSF Number of Properties Annualized Base Rent Operating and Redevelopment Market / Submarket / Address Operating Development Redevelopment Total Operating Research Triangle Park Research Triangle Park Alexandria Technology Center ® – Alston 186,870 — — 186
Slide 42: Incremental Annual Net Operating Income from Development and Redevelopment Projects
Incremental Annual Net Operating Income from Development and Redevelopment Projects
Slide 43: Incremental Annual Net Operating Income (notes)
(1) Represents incremental annual net operating income upon stabilization of our development and redevelopment projects, including our share of real estate joint venture projects. RSF and percentage leased represent 100% of each property.
Slide 44: Disciplined Allocation of Capital and Management of Value-Creation Pipeline
Disciplined Allocation of Capital and Management of Value-Creation Pipeline 2016 Disciplined Allocation of Capital (1) Value-Creation Pipeline 97% Allocated to Urban Innovation Submarkets Development/Redevelopment of Class A Properties
Slide 45: Value-Creation Pipeline: In-Process and Future Growth
In-Process Future Growth Opportunities (2) 2.5M 6.9M RSF RSF Pre-Leased Percentage: 5.1 million RSF of Ground-Up Developments since January 1, 2009 (3) Ground-Up Developments Commenced and Delivered since January 1, 2009 Single-Tenant 100% Pre-Leased 2.6M RSF Multi-Tenant 38% Pre-Leased 2.5M RSF Ave
Slide 46: Building the Future of Life-Changing Innovation
Ch) ALEXANDRIA. Building the Future of Life-Changing Innovation
Slide 47: Investments in Real Estate
(1) Upon completion of 19 in-process Leadership in Energy and Environmental Design certification projects. Investments in Real Estate
Slide 48: Investments in Real Estate
(Dollars in thousands, except per SF amounts) Investments in Real Estate Total Square Feet Per Square Foot % Investments in real estate: Rental properties $ 8,244,953 % 16,052,751 $ Development and redevelopment projects: Projects to be delivered in 4Q16 237,514 366,081 Projects to be delivered in 2
Slide 49: Development and Redevelopment Projects Delivered
(Dollars in thousands) RSF in Service % of Project in Service Unlevered Yields Placed into Service 2016 Total Project Average Cash Initial Stabilized Cash Basis Initial Stabilized Property/Market/Submarket Our Ownership Interest Date Delivered Prior to 1/1/16 First Quarter Second Quarter Third Quart
Slide 50: Binney Street, East 29th Street Projects
50 Binney Street 60 Binney Street 430 East 29th Street Greater Boston/Cambridge Greater Boston/Cambridge New York City/Manhattan 274,734 RSF 255,743 RSF 418,639 RSF Sanofi Genzyme bluebird bio, Inc. Roche/New York University/Others
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Slide 53: 5200 Illumina Way, Hurley Street, Longwood Avenue
5200 Illumina Way, Building 6 11 Hurley Street 360 Longwood Avenue San Diego/University Town Center Greater Boston/Cambridge Greater Boston/Longwood Medical Area 295,609 RSF 59,783 RSF 313,407 RSF Illumina, Inc. Editas Medicine, Inc. Dana-Farber Cancer Institute, Inc. The Children’s Hospital Corpora
Slide 54: eA Wake Te
eA Wake Te
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Slide 56: Projects Expected to Be Placed into Service in 4Q16
Visible-Growth Highly Leased Pipeline: Projects Expected to Be Placed into Service in 4Q16
Slide 57: Projects Expected in Service in 4Q16
(Dollars in thousands) Dev/ Redev Project RSF Percentage Total Leased/Negotiating Project Start Occupancy Property/Market/Submarket In Service CIP Total Leased Negotiating RSF % Initial Stabilized Consolidated projects 4796 Executive Drive/San Diego/University Town Center Dev — 61,755 61,755 % — % 6
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Slide 59: NaH A
NaH A (iT ht
Slide 60: Project Footnotes
(1) We expect to place the project into service in 4Q16 with 100,392 RSF of remaining space to lease. Our ownership interest in this project is 27.5% . (2) Development management fees earned from these projects have been excluded from our estimate of unlevered yields. Project cost at completion repr
Slide 61: Highly Leased Development and Redevelopment Projects
(Dollars in thousands) Dev/ Redev Project RSF Percentage Total Leased/Negotiating Project Start Occupancy Property/Market/Submarket In Service CIP Total Leased Negotiating RSF % Initial Stabilized Consolidated projects 100 Binney Street/Greater Boston/Cambridge Dev — 431,483 431,483 % % 341,556 % 3Q
Slide 62: Binney Street, Townsend Street, Brannan Street, 400 Dexter Avenue North
100 Binney Street 510 Townsend Street 505 Brannan Street, Phase I 400 Dexter Avenue North Greater Boston/Cambridge San Francisco/Mission Bay/SoMa San Francisco/Mission Bay/SoMa Seattle/Lake Union 431,483 RSF 300,000 RSF 150,000 RSF 287,806 RSF Bristol-Myers Squibb Company Stripe, Inc. Pinterest, Inc
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Slide 66: ARE Spectrum, 9625 Towne Centre Drive, 1455/1515 Third Street
ARE Spectrum 9625 Towne Centre Drive 1455/1515 Third Street San Diego/Torrey Pines San Diego/University Town Center San Francisco/Mission Bay/SoMa 233,523 RSF 162,156 RSF 422,980 RSF Celgene Corporation The Medicines Company Vertex Pharmaceuticals Incorporated Negotiating Uber Technologies, Inc.
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Slide 68: i vA KN a
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Slide 69: Key Future Projects
Key Future Projects
Slide 70: Key Future Projects
(Dollars in thousands, except per SF amounts) Our Interest Square Feet Property/Submarket Book Value Owned Pending Per SF (1) Key future projects: Greater Boston One Kendall Square/Cambridge 100% $ — (2) — 172,500 $ — Alexandria Technology Square ® /Cambridge 100% 7,787 100,000 — San Francisco 88 Bl
Slide 71: Key Future Projects (continued)
Key Future Projects (continued) One Kendall Square (1) 88 Bluxome Street (1) / 505 Brannan Street Grand Avenue / 560 Eccles Avenue East 29th Street Greater Boston/Cambridge San Francisco/Mission Bay/SoMa San Francisco/Mission Bay/SoMa New York/Manhattan 172,500 SF 1,070,925 SF / 165,000 SF 521,791 S
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Slide 75: 5200 Illumina Way, Campus Point Drive, Eastlake, 6 Davis Drive
5200 Illumina Way Campus Pointe Drive 1156/1165/1166 Eastlake Avenue East / 1818 Fairview Avenue East 6 Davis Drive San Diego/University Town Center San Diego/University Town Center Seattle/Lake Union Research Triangle Park/RTP 386,044 SF 315,000 SF 366,000 SF / 188,490 SF 1,000,000 SF
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Slide 79: Year to Date and Projected Construction Spending
(1) Acquisition under contract as of September 30, 2016 . Refer to page 5 of our Earnings Press Release for additional information. Year to Date and Projected Construction Spending
Slide 80: Construction Spending
(Dollars in thousands, except for per RSF amounts) Year to Date Construction Spending Nine Months Ended September 30, 2016 Additions to real estate – consolidated projects (1) $ 638,568 Investments in unconsolidated real estate joint ventures 6,924 Construction spending (cash basis) 645,492 Increase
Slide 81: Joint Venture Financial Information
(Dollars in thousands) We present components of operating results and balance sheet information for the share of our consolidated real estate joint ventures owned by noncontrolling interests and for our share of investments in unconsolidated real estate joint ventures. These amounts are estimated by
Slide 82: Dispositions – Asia
(Dollars in thousands) In April 2016, our Board of Directors approved the monetization of our remaining real estate investments in Asia in order to invest capital into our highly leased value-creation pipeline. As a result of this decision, we recognized an aggregate impairment charge of $190.4 mill
Slide 83: Investments: Public/Private Mix
(Dollars in thousands) Public/Private Mix (Cost) Tenant/Non-Tenant Mix (Cost)
Slide 84: Public and Private Investments
Public Private [iw
Slide 85: Investments by Type
Investment Type Cost Net Unrealized Gains Total Number of Investments Average Cost $1.4M Public $ 40,090 $ 28,917 $ 69,007 Private 251,982 — 251,982 Total $ 292,072 $ 28,917 $ 320,989
Slide 86: Key Credit Metrics
Key Credit Metrics Net Debt to Adjusted EBITDA (1) Liquidity
Slide 87: Liquidity and Fixed-Charge Coverage
$1.9B (In millions) Availability under our $1.65 billion unsecured senior line of credit $ 1,234 Remaining construction loan commitments Available-for-sale equity securities, at fair value Cash and cash equivalents $ 1,877 Fixed-Charge Coverage Ratio (1) Unencumbered Net Operating Income (2)
Slide 88: Unencumbered Net Operating Income
87% (1) Quarter annualized. (2) For the three months ended September 30, 2016 .
Slide 89: Summary of Debt
Summary of Debt Debt maturities chart (Dollars in millions)
Slide 90: Fixed-Rate and Variable-Rate Debt
Fixed-rate/hedged and unhedged variable-rate debt Fixed-Rate/Hedged Variable-Rate Debt Unhedged Variable-Rate Debt Weighted-Average Remaining Term (in years) (Dollars in thousands) Total Percentage Interest Rate (1) Secured notes payable $ 419,276 $ 370,174 $ 789,450 18.2 % 3.34 % 2.6 Unsecured seni
Slide 91: Summary of Debt (continued)
(Dollars in thousands) Stated Rate Weighted-Average Interest Rate Maturity Date Principal Payments Remaining for the Periods Ending December 31, Unamortized (Deferred Financing Cost), (Discount)/Premium Debt (1) (2) Thereafter Principal Total Secured notes payable Maryland 2.44 % 2.81 % 1/20/17 (3)
Slide 92: Secured Construction Loans and Debt Covenants
(Dollars in thousands) Secured construction loans Property/Market/Submarket Stated Rate Maturity Date Outstanding Balance Remaining Commitments Total Commitments 75/125 Binney Street/Greater Boston/Cambridge L+1.35 % 8/23/17 $ 210,464 $ 39,936 $ 250,400 50/60 Binney Street/Greater Boston/Cambridge L
Slide 93: Definitions and Reconciliations
Definitions and Reconciliations This section contains additional information for sections throughout this supplemental information package as well as explanations of certain non-GAAP financial measures and the reasons why we use these supplemental measures of performance. Additional detail can be fo
Slide 94: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Dividend payout ratio (common stock) Dividend payout ratio (common stock) is the ratio of the absolute dollar amount of dividends on our common stock (shares of common stock outstanding on the respective record dates multiplied by the related dividend per
Slide 95: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Joint venture financial information We present components of operating results and balance sheet information related to our joint ventures, which are not in accordance with or intended to be presentations in accordance with GAAP. We present the proportiona
Slide 96: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Net operating income is a non-GAAP financial measure calculated as income (loss) from continuing operations, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding general and administrative expense, inte
Slide 97: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Total equity market capitalization Total equity market capitalization is equal to the sum of outstanding shares of 7.00% Series D cumulative convertible preferred stock, 6.45% Series E cumulative redeemable preferred stock, and common stock multiplied by t
Alexandria Real Estate Equities — Q3 2016 Earnings Presentation on 6ix