Alexandria Real Estate Equities, Inc. · NYSE:ARE
Alexandria Real Estate Equities — Q4 2018 Earnings Presentation
100 slides from Alexandria Real Estate Equities's earnings presentation, Feb 4, 2019
Slide 1: Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2019
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2019
Slide 2: Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2019
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2019 i
Slide 3: See definitions of “Annual Rental Revenue,” “Class A Properties and AAA Locations,” and “Investment-Grade
(1) See definitions of “Annual Rental Revenue,” “Class A Properties and AAA Locations,” and “Investment-Grade or Publicly Traded Large Cap Tenants” in the “Definitions and Reconciliations” section of our Supplemental Information for additional information. As of December 31, 2018 , annual rental rev
Slide 4: Table of Contents
Table of Contents EARNINGS PRESS RELEASE Page Fourth Quarter and Year Ended December 31, 2018, Financial and Operating Results Acquisitions Dispositions and Sale of Partial Joint Venture Interest Guidance Earnings Call Information and About the Company Consolidated Statements of Operations Consolida
Slide 5: Alexandria Reports Fourth Quarter and Year 2018 Results
Alexandria Real Estate Equities, Inc. Reports: 2018 Revenues of $1.3 billion , up 17.7% over 2017; 4Q18 Loss Per Share – Diluted of $(0.30) and 2018 EPS – Diluted of $3.52 ; 4Q18 and 2018 FFO – Diluted, As Adjusted, Per Share of $1.68 and $6.60 ; Operational Excellence and Growing Dividends PASADENA
Slide 6: Fourth Quarter and Year Ended December 31, 2018, Financial and Operating Results (continued)
Fourth Quarter and Year Ended December 31, 2018, Financial and Operating Results (continued) Future growth of net operating income (cash basis) driven by recently delivered projects Significant near-term growth of net operating income (cash basis) of $42 million upon the burn-off of initial free ren
Slide 7: Fourth Quarter and Year Ended December 31, 2018, Financial and Operating Results (continued)
Fourth Quarter and Year Ended December 31, 2018, Financial and Operating Results (continued) Corporate responsibility and industry leadership • Our philanthropy and volunteerism efforts focus on providing mission-critical support to non-profit organizations doing impactful work in the areas of medic
Slide 8: Building the Future of Life-Changing Innovation
GA) ALEXANDRIA. — Building the Future of Life-Changing Innovation™
Slide 9: Acquisitions
(1) Rental rate increase of 14.1% (cash basis) represents our highest annual increase during the past 10 years. (2) Leasing activity aggregating 4.7 million RSF for 2018 represents the second highest annual leasing activity in our history. Acquisitions
Slide 10: Acquisitions
(Dollars in thousands) Property Submarket/Market Date of Purchase Number of Properties Operating Occupancy Square Footage Purchase Price Future Development Active Redevelopment Operating With Future Development/Redevelopment 4Q18 Acquisitions: Alexandria Life Science Factory at Long Island City (1)
Slide 11: Dispositions and Sale of Partial Joint Venture Interest
(Dollars in thousands, except per RSF amounts) Property Submarket/Market Date of Sale RSF Sales Price Sales Price per RSF Gain 4Q18 Disposition: 1300 Quince Orchard Boulevard Gaithersburg/Maryland 12/13/18 54,874 $ 14,441 (1) $ $ 8,704 2019 Sale of Partial Joint Venture Interest: 75/125 Binney Stree
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, 2019. There can be no assurance that actual amounts will not be materially higher or lower than these expectation
Slide 13: Earnings Call Information and About the Company
Earnings Call Information and About the Company We will host a conference call on Tuesday , February 5, 2019 , 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
Slide 14: Consolidated Statements of Operations
(In thousands, except per share amounts) Three Months Ended Year Ended 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 12/31/18 12/31/17 Revenues: Rental $ 260,102 $ 255,496 $ 250,635 $ 244,485 $ 228,025 $ 1,010,718 $ 863,181 Tenant recoveries 77,683 81,051 72,159 73,170 70,270 304,063 259,144 Other incom
Slide 15: Consolidated Balance Sheets
(In thousands) 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Assets Investments in real estate $ 11,913,693 $ 11,587,312 $ 11,190,771 $ 10,671,227 $ 10,298,019 Investments in unconsolidated real estate joint ventures 237,507 197,970 192,972 169,865 110,618 Cash and cash equivalents 234,181 204,181 287,0
Slide 16: Funds From Operations
(In thousands) The following table presents a reconciliation of net (loss) 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 conso
Slide 17: Funds From Operations per Share
(In thousands, except per share amounts) The following table presents a reconciliation of net (loss) 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 a
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 $18.4 billion and an asset base in North A
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) 578-0777 Pasadena, California 91101 7.00% Series D preferred stock: ARE PRD Email: corporateinformation@are.com Web: www.are.
Slide 20: Building the Future of Life-Changing Innovation
GA) ALEXANDRIA. — Building the Future of Life-Changing Innovation™
Slide 21: Sustainability
(1) For the years ended December 31, 2016 and 2017. We expect to disclose data for the year ended December 31, 2018, in 2019. (2) Upon completion of 15 projects in process targeting LEED certification. (3) Upon completion of three projects in process targeting WELL certification. (4) Upon completion
Slide 22: High-Quality, Diverse, and Innovative Tenants
High-Quality, Diverse, and Innovative Tenants Cash Flows from High-Quality, Diverse, and Innovative Tenants Investment-Grade or Publicly Traded Large Cap Tenants Tenant Mix
Slide 23: A REIT Industry-Leading Tenant Roster
52% 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, 2018 . (2) Our annual rental revenue from technology tenants consists of: • 39% from investment-grade cre
Slide 24: 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 25: Class A Properties in AAA Locations: Share of Annual Rental Revenue
77% 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, 2018 .
Slide 26: Occupancy
Occupancy Solid Demand for Class A Properties in AAA Locations Drives Solid Occupancy Solid Historical Occupancy (1) Occupancy Across Key Locations
Slide 27: Occupancy Over Years
96% Over 10 Years (1) Average occupancy of operating properties in North America as of each December 31 for the last 10 years. Financial and Asset Base Highlights
Slide 28: Financial and Asset Base Highlights
(Dollars in thousands, except per share amounts) Three Months Ended (unless stated otherwise) 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Selected financial data from consolidated financial statements and related information Operating margin 71% 71% 72% 71% 71% Adjusted EBITDA margin 69% 69% 69% 69% 6
Slide 29: Financial and Asset Base Highlights (continued)
(Dollars in thousands, except annual rental revenue per occupied RSF amounts) Three Months Ended (unless stated otherwise) 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Amounts included in funds from operations and non-revenue-enhancing capital expenditures Straight-line rent revenue $ 17,923 $ 20,070 $
Slide 30: Key Operating Metrics
Key Operating Metrics Favorable Lease Structure (1) Same Property Net Operating Income Growth
Slide 31: Same Property Net Operating Income Growth
4.1% 2016 2017 2018
Slide 32: 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 96% Margins (2) Rental Rate Growth: Renewed/Re-Leased Space
Slide 33: Rental Rate Growth
2016 2017 2018
Slide 34: Operating and Adjusted EBITDA Margins
Operating Adjusted EBITDA 71% 69% (1) Percentages calculated based on RSF as of December 31, 2018 . (2) Represents percentages for the three months ended December 31, 2018 . Same Property Performance
Slide 35: Same Property Performance
(Dollars in thousands) Same Property Financial Data 4Q18 Same Property Statistical Data 4Q18 Percentage change over comparable period from prior year: Number of same properties Net operating income increase 3.8% 3.7% Rentable square feet 17,641,401 17,221,297 Net operating income increase (cash basi
Slide 36: Leasing Activity
(Dollars per RSF) Three Months Ended Year Ended Year Ended 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 17.4% (2) 11.4% 24.1% 14.1% 25.1% 12.7% New rates $52.6
Slide 37: 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) 1,232,553 5.7 % $ 43.36 5.2 % 1,766,578 8.1 % $ 37.43 6.4 % 1,492,897 6.9 % $ 39.47 5.7 % 1,733,458 8.0 % $ 42.15 7.1 % 2,279,590 10.5
Slide 38: Top 20 Tenants
(Dollars in thousands, except average market cap amounts) 79% of Top 20 Annual Rental Revenue From Investment-Grade or Publicly Traded 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-G
Slide 39: 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 6,236,036 164,000 31,858 6,431,894 % $ 383,817 % $ 62.36 San Francisco 4,818,806 1,3
Slide 40: 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 2,365,487 — — 2,365,487
Slide 41: 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 (1) — 593,765 — 593,765 $ — N/A N/A 409 an
Slide 42: 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 $ 17,173 100.0 % 100.0 % 3215 Merryfield Row
Slide 43: 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 $ 15,068 100.0 % 100.0 % 1201 and 120
Slide 44: Property Listing (Maryland, 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 $ 2,439 96.6
Slide 45: Disciplined Management of Ground-Up Developments
Disciplined Management of Ground-Up Developments
Slide 46: Ground-Up Developments Since 2008
(1) Represents developments commenced since January 1, 2008, comprising 28 projects aggregating 7.1 million RSF. (2) Represents developments commenced and delivered since January 1, 2008, comprising 23 projects aggregating 5.5 million RSF. Investments in Real Estate
Slide 47: Investments in Real Estate
(Dollars in thousands) Investments in Real Estate Square Footage Investments in real estate: Operating Construction Pre- Construction Intermediate- Term and Future Projects Total Rental properties: Consolidated $ 12,588,611 22,082,974 — — — 22,082,974 Unconsolidated (1) N/A 276,579 — — — 276,579 12,
Slide 48: 4Q18 Deliveries
(Dollars in thousands) 399 Binney Street 213 East Grand Avenue 9625 Towne Centre Drive 9900 Medical Center Drive 5 Laboratory Drive Greater Boston/Cambridge San Francisco/South San Francisco San Diego/University Town Center Maryland/Rockville Research Triangle Park/RTP 123,403 RSF 300,930 RSF 163,64
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Slide 53: Recent Deliveries
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 10/1/18 4Q18 1Q19 Total RSF Investment 4Q18 deliveries: Consolidated development projects
Slide 54: 1Q19 Deliveries
399 Binney Street 266 and 275 Second Avenue 1655 and 1725 Third Street Greater Boston/Cambridge Greater Boston/Route 128 San Francisco/Mission Bay/SoMa 164,000 RSF 31,858 RSF 593,765 RSF Rubius Therapeutics, Inc. Relay Therapeutics, Inc. Celsius Therapeutics, Inc. Blossom Innovations, LLC Multi-Tena
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Slide 57: Projected 2019 Deliveries
279 East Grand Avenue 681 Gateway Boulevard Menlo Gateway San Francisco/South San Francisco San Francisco/South San Francisco San Francisco/Greater Stanford 211,405 RSF 142,400 RSF 520,988 RSF Verily Life Sciences, LLC insitro, Inc. Eli Lilly and Company Twist Bioscience Corporation Multi-Tenant/Mar
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Slide 60: New Class A Development and Redevelopment Properties: 2019 Deliveries
New Class A Development and Redevelopment Properties: 2019 Deliveries
Slide 61: 2019 Deliveries
Alexandria PARC Alexandria Life Science Factory at Long Island City 188 East Blaine Street San Francisco/Greater Stanford New York City/New York City Seattle/Lake Union 48,547 RSF 140,098 RSF 198,000 RSF Adaptive Insights, Inc. Multi-Tenant/Marketing bluebird bio, Inc. Seattle Cancer Care Alliance S
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Slide 64: 2019 Deliveries
704 Quince Orchard Road 5 Laboratory Drive Maryland/Gaithersburg Research Triangle Park/RTP 55,347 RSF 121,477 RSF Multi-Tenant/Marketing Arysta LifeScience Inc. StrideBio, Inc. GreenLight Biosciences, Inc.
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Slide 66: New Class A Development and Redevelopment Properties: 2019 Deliveries (continued)
New Class A Development and Redevelopment Properties: 2019 Deliveries (continued)
Slide 67: 2019 Deliveries Summary
(Dollars in thousands) Property/Market/Submarket Dev/Redev RSF Percentage Project Start Occupancy (1) In Service Construction Total Leased Leased/Negotiating Initial Stabilized Consolidated projects 266 and 275 Second Avenue/Greater Boston/Route 128 Redev 171,899 31,858 203,757 % % 3Q17 1Q18 5 Labor
Slide 68: Projected 2020 Deliveries
201 Haskins Way 825 and 835 Industrial Road ARE Spectrum Campus Pointe by Alexandria San Francisco/South San Francisco San Francisco/Greater Stanford San Diego/Torrey Pines San Diego/University Town Center 280,000 RSF 530,000 RSF 87,000 RSF 98,000 RSF
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Slide 72: Projected 2020 Deliveries
1165 Eastlake Avenue East 9800 Medical Center Drive 9950 Medical Center Drive 6 Davis Drive 9 Laboratory Drive Seattle/Lake Union Maryland/Rockville Maryland/Rockville Research Triangle Park/RTP Research Triangle Park/RTP 106,000 RSF 174,640 RSF 83,137 RSF 200,000 RSF 100,000 RSF
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Slide 77: Projected 2020 Deliveries (continued)
New Class A Development and Redevelopment Properties: Projected 2020 Deliveries (continued)
Slide 78: 2020 Deliveries Summary
Property/Market/Submarket Dev/Redev RSF In Service CIP Total 2020 deliveries: consolidated projects 201 Haskins Way/San Francisco/South San Francisco Dev — 280,000 280,000 825 and 835 Industrial Road/Greater Stanford/San Francisco Dev — 530,000 530,000 ARE Spectrum/San Diego/Torrey Pines Dev 336,461
Slide 79: Summary of Pipeline
(Dollars in thousands) Property/Submarket Our Ownership Interest Book Value Square Footage Projected Deliveries Future 2021–2022 Total Greater Boston Undergoing construction or pre-construction 399 Binney Street (Alexandria Center ® at One Kendall Square)/Cambridge % $ 160,705 164,000 — — — 164,000
Slide 80: Summary of Pipeline (continued)
(Dollars in thousands) Property/Submarket Our Ownership Interest Book Value Square Footage Projected Deliveries Future 2021–2022 Total San Diego Undergoing construction or pre-construction ARE Spectrum/Torrey Pines % $ 29,698 — 87,000 — — 87,000 Campus Pointe by Alexandria/University Town Center (1
Slide 81: Construction Spending
(Dollars in thousands, except per RSF amounts) Year Ended Construction Spending Additions to real estate – consolidated projects $ 927,168 Investments in unconsolidated real estate joint ventures 116,008 Contributions from noncontrolling interests (28,275 ) Construction spending (cash basis) (1) 1,0
Slide 82: Joint Venture Financial Information
(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 83: 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 net asset value (“NAV”) is readily available. For investments without readily available fair values, we adj
Slide 84: Tenant/Non-Tenant Mix (Cost)
Tenant/Non-Tenant Mix (Cost)
Slide 85: Holdings
$2.1M Holdings Average Cost of Investment
Slide 86: Key Credit Metrics
Key Credit Metrics Net Debt to Adjusted EBITDA (1) Net Debt and Preferred Stock to Adjusted EBITDA (1)
Slide 87: Net Debt and Preferred Stock to Adjusted EBITDA
55x 9.4x <5.3x 4Q17 4Q18 4Q19 Goal
Slide 88: Fixed-Charge Coverage Ratio and Liquidity
Fixed-Charge Coverage Ratio (1) Liquidity (2)
Slide 89: Liquidity
$2.4B (in millions) Availability under our $2.2 billion unsecured senior line of credit $ 1,992 Cash, cash equivalents, and restricted cash Investments in publicly traded companies $ 2,448 (1) Quarter annualized. (2) As of December 31, 2018 .
Slide 90: Summary of Debt
Summary of Debt Debt maturities chart (In millions)
Slide 91: Fixed-Rate/Hedged and Unhedged Variable-Rate Debt
Fixed-rate/hedged and unhedged variable-rate debt (Dollars in thousands) Fixed-Rate/Hedged Variable-Rate Debt Unhedged Variable-Rate Debt Total Percentage Weighted-Average Interest Rate (4) Remaining Term (in years) Secured notes payable $ 587,444 $ 43,103 $ 630,547 11.5 % 4.22 % 3.1 Unsecured senio
Slide 92: Debt Detail
(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 % 3.29 % 1/28/20 (3) $ — $ 193
Slide 93: 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 Interest Rate (1) Debt Balance (2) Remaining Commitments 1401/1413 Research Boulevard 65.0 % 5/17/20 L+2.50% 5.87 % $ 20,181 $ 7,435 1655
Slide 94: 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 95: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) Cash interest Cash interest is equal to interest expense calculated in accordance with GAAP plus capitalized interest, less amortization of loan fees and debt premiums (discounts). See definition of fixed-charge coverage ratio for a reconciliation of inter
Slide 96: 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 97: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) • One-time adjustments recognized upon adoption on January 1, 2018: • For investments in publicly traded companies, reclassification of cumulative unrealized gains as of December 31, 2017, aggregating $49.8 million , from accumulated other comprehensive in
Slide 98: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) information should not be considered an alternative to our consolidated financial statements, which are prepared in accordance with GAAP. Net cash provided by operating activities after dividends Net cash provided by operating activities after dividends in
Slide 99: Definitions and Reconciliations (continued)
Definitions and Reconciliations (continued) line basis and our investment in the property. Net operating income excludes certain components from net income in order to provide results that are more closely related to the results of operations of our properties. For example, interest expense is not n
Slide 100: 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 and common stock multiplied by the related closing price of each class of security at t
Alexandria Real Estate Equities — Q4 2018 Earnings Presentation on 6ix