Alexandria Real Estate Equities, Inc. Reports Second Quarter Ended June 30, 2017, Financial and Operating Results Strong Internal and External Growth

2Q17

1H17

Total leasing activity – RSF

1,081,777

2,402,558

Lease renewals and re-leasing of space:

Rental rate increases

23.2%

26.2%

Rental rate increases (cash basis)

9.4%

14.7%

RSF (included in total leasing activity above)

604,142

1,483,005

Delivery Date

RSF

Percentage Leased

Incremental Annual Net Operating Income

1,893,928

94%

$92 million⁽¹⁾

1H17

304,276

100%

$21 million

2H17

1,100,841

81%

$74 million to $84 million⁽¹⁾

(1)    Deliveries of projects are primarily weighted toward the fourth quarter.

Operating results

2Q17

2Q16

Change

1H17

1H16

Change

Net income (loss) attributable to Alexandria's common stockholders – diluted:

In millions

$

31.6

$

(127.6)

N/A

$

57.3

$

(131.5)

N/A

Per share

$

0.35

$

(1.72)

N/A

$

0.64

$

(1.79)

N/A

Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted:

In millions

$

136.2

$

101.1

34.7%

$

266.7

$

198.2

34.6%

Per share

$

1.50

$

1.36

10.3%

$

2.98

$

2.70

10.4%

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 amounts)

Amount

Per Share –
Diluted

Amount

Per Share –
Diluted

2Q17

2Q16

2Q17

2Q16

1H17

1H16

1H17

1H16

Gain on sales of real estate

$

0.1

$

—

$

—

$

—

$

0.4

$

—

$

—

$

—

Impairment of:

Rental properties

(0.2)

(88.4)

—

(1.19)

(0.2)

(88.4)

—

(1.20)

Land parcels

—

(67.2)

—

(0.90)

—

(96.1)

—

(1.30)

Non-real estate investments

(4.5)

—

(0.05)

—

(4.5)

—

(0.05)

—

Loss on early extinguishment of debt

—

—

—

—

(0.7)

—

(0.01)

—

Preferred stock redemption charge

—

(9.5)

—

(0.13)

(11.3)

(12.5)

(0.12)

(0.17)

Total

$

(4.6)

$

(165.1)

$

(0.05)

$

(2.22)

$

(16.3)

$

(197.0)

$

(0.18)

$

(2.67)

Weighted-average shares of common 
     stock outstanding – diluted

90.7

74.3

89.5

73.5

Key Metrics

2Q17

Total market capitalization

$

16.0 billion

Liquidity

$

1.8 billion

Net debt to Adjusted EBITDA:

     Quarter annualized

6.2x

     Trailing 12 months

6.8x

Fixed-charge coverage ratio:

     Quarter annualized

4.1x

     Trailing 12 months

3.9x

Unhedged variable-rate debt as a percentage of total debt

11%

Current and future value-creation pipeline as a percentage of gross
  investments in real estate in North America

13%

Property

Submarket/Market

Date of Purchase

Number of Properties

Operating Occupancy

Square Footage

Operating

Redevelopment

Future
Development

Purchase
Price

303 Binney Street ⁽¹⁾

Cambridge/Greater Boston

3/29/17

—

N/A

—

—

208,965

80,250

88 Bluxome Street ⁽²⁾

Mission Bay/SoMa/San Francisco

1/10/17

1

100%

232,470

⁽²⁾

—

1,070,925

⁽²⁾

130,000

3050 Callan Road and Vista Wateridge

Torrey Pines/Sorrento Mesa/San Diego

3/24/17

—

N/A

—

—

229,000

8,250

1

232,470

—

1,508,890

218,500

2Q17:

960 Industrial Road ⁽³⁾

Greater Stanford/San Francisco

5/17/17

1

100%

195,000

⁽³⁾

—

500,000

⁽³⁾

64,959

825 and 835 Industrial Road ⁽⁴⁾

Greater Stanford/San Francisco

6/1/17

—

N/A

—

—

530,000

85,000

1450 Page Mill Road ⁽⁵⁾

Greater Stanford/San Francisco

6/1/17

1

100%

77,634

—

—

85,300

5 Laboratory Drive ⁽⁶⁾

Research Triangle Park/RTP

5/25/17

1

N/A

—

175,000

—

8,750

3

272,634

175,000

1,030,000

244,009

2H17:

266 and 275 Second Avenue ⁽⁷⁾

Route 128/Greater Boston

7/11/17

2

71%

146,129

57,628

—

71,000

1455 and 1515 Third Street
 (acquisition of remaining 49% interest)

Mission Bay/SoMa/San Francisco

11/10/16

2

100%

422,980

—

—

56,800

⁽⁸⁾

590,309

(1)

Land parcel located adjacent to our Alexandria Center^® at One Kendall Square campus that is currently entitled for the development of 163,339 RSF of office or office/laboratory space and 45,626 RSF of residential space. We may seek to increase the entitlements, which may result in additional purchase price consideration.

(2)

We are currently pursuing entitlements for the development of two buildings aggregating 1,070,925 RSF in two phases. The future development project undergoing entitlements for 1,070,925 developable square feet will replace the leading tennis and fitness facility consisting of 232,470 RSF. We expect to provide total estimated project costs and related yields in the future.

(3)

We are currently pursuing entitlements of 500,000 RSF for a multi-building development. We have leased the existing 195,000 RSF property back to the seller on a short-term basis, while we obtain entitlements. The future development square footage will replace the current operating RSF. We expect to provide total estimated project costs and related yields in the future.

(4)

Fully-entitled land parcel for the development of two buildings aggregating 530,000 RSF and a parking structure. When combined with our acquisition of the 960 Industrial Road land parcel, these sites will have the ability to develop 1.0 million SF of Class A properties clustered in an urban science and technology campus.

(5)

Technology office building, subject to a 51-year ground lease, located in Stanford Research Park, a collaborative business community that supports innovative companies in their research and development pursuits. This recently constructed building is 100% leased to Infosys Limited for 12 years, and we expect initial stabilized yields of 7.3% and 5.8% (cash).

(6)

We acquired 3054 East Cornwallis Road and will redevelop and rebrand the campus along with 6 Davis Drive as the Alexandria Center^® for AgTech – RTP, with its newly named address of 5 Laboratory Drive.

(7)

Property acquired with 59,656 RSF, or 29%, of vacant space, of which 57,628 RSF, or 28%, will undergo conversion from office to laboratory space through redevelopment. The property will provide an additional opportunity to increase stabilized cash yields through redevelopment of the space and the re-lease of in-place below-market leases. We expect to provide total estimated project costs and related yields in the future.

(8)

Acquisition of the remaining 49% interest in our unconsolidated real estate joint venture with Uber Technologies, Inc. ("Uber") was completed in November 2016. A portion of the consideration is payable in 2017 in three equal installments, upon Uber's completion of construction milestones. The first installment of $18.9 million was paid in 2Q17.

Property/Market/Submarket

Date of Sale

RSF

Net Operating

Income ⁽¹⁾

Net Operating
Income

(Cash) ⁽¹⁾

Contractual
Sale Price

Gain

6146 Nancy Ridge Drive/San Diego/Sorrento Mesa

1/6/17

21,940

N/A

N/A

$

3,000

$

270

1401/1413 Research Boulevard/Maryland/Rockville ⁽²⁾

5/17/17

90,000

N/A

N/A

7,937

111

360 Longwood Avenue/Greater Boston/Longwood Medical Area ⁽³⁾

7/6/17

203,090

$

4,313

$

4,168

65,701

14,106

$

76,638

14,487

(1)

Represents annualized amounts for the quarter ended prior to the date of sale. Net operating income (cash) excludes straight-line rent and amortization of acquired below-market leases.

(2)

In May 2017, we recognized a gain of $111 thousand upon the sale of a 35% interest in our land parcels at 1401/1413 Research Boulevard, located in the Rockville submarket of Maryland. The sale was executed with a distinguished retail real estate developer for the development of an approximately 90,000 SF retail shopping center. We contributed the land parcels at a fair value of $7.9 million into a new entity, our partner contributed $3.9 million, and we received a distribution of $0.7 million. In addition, the real estate joint venture obtained a non-recourse secured construction loan with aggregate commitments of $25.0 million which is expected to fund the remaining construction costs to complete the project and we do not expect to make additional equity contributions to the real estate joint venture. See page 41 of the supplemental information for additional financial information on our unconsolidated real estate joint ventures.

(3)

Represents the sale of a condominium interest for approximately 49% of the building RSF, or 203,090 RSF, in our unconsolidated real estate joint venture property. Net operating income, net operating income (cash basis), and contractual sales price represent our 27.5% share related to the sale of the condominium interest. The unconsolidated real estate joint venture expects to refinance the loan in 3Q17, secured by the remaining interest in the property. We expect to receive a cash distribution from the joint venture in the range from $35 million to $40 million for our share of the excess cash, primarily from the condominium sale and loan refinancing.

Summary of Key Changes in Guidance

As of 7/31/17

As of 5/1/17

Summary of Key Changes in Guidance

As of 7/31/17

As of 5/1/17

EPS, FFO per share, and FFO per share, as adjusted

See below

See below

Key sources and uses of capital

See update below

Earnings per Share and Funds From Operations per Share Attributable to Alexandria's
Common Stockholders – Diluted

As of 7/31/17

As of 5/1/17

Earnings per share

$1.40 to $1.46

$1.43 to $1.53

Depreciation and amortization

4.45

4.45

Allocation to unvested restricted stock awards

(0.04)

(0.04)

Funds from operations per share

$5.81 to $5.87

$5.84 to $5.94

Add: impairment of non-real estate investments

    0.05 ⁽¹⁾

—

Add: loss on early extinguishment of debt

0.01

0.01

Add: preferred stock redemption charge

    0.12 ⁽²⁾

Funds from operations per share, as adjusted

Key Assumptions

Low

High

Occupancy percentage in North America as of December 31, 2017

96.6%

97.2%

Lease renewals and re-leasing of space:

Rental rate increases

19.5%

22.5%

Rental rate increases (cash basis)

7.5%

10.5%

Same property performance:

Net operating income increase

2.0%

4.0%

Net operating income increase (cash basis)

5.5%

7.5%

Straight-line rent revenue

$

107

$

112

General and administrative expenses

$

68

$

73

Capitalization of interest

$

48

$

58

Interest expense

$

131

$

141

Key Credit Metrics

As of 7/31/17

Net debt to Adjusted EBITDA – 4Q17 annualized

5.3x to 5.8x

Net debt and preferred stock to Adjusted EBITDA – 4Q17 annualized

5.3x to 5.8x

Fixed-charge coverage ratio – 4Q17 annualized

Greater than 4.0x

Value-creation pipeline as a percentage of gross real estate as of
  December 31, 2017

Less than 10%

Key Sources and Uses of Capital

Range

Midpoint

Key Items
Remaining
After
7/31/17

Sources of capital:

Net cash provided by operating activities after
  dividends

$

115

$

135

$

125

Incremental debt

350

330

340

Real estate dispositions and common equity

1,080

1,350

1,215

⁽³⁾

$

230

Total sources of capital

$

1,545

$

1,815

$

1,680

Uses of capital:

Construction

$

815

$

915

$

865

$

453

Acquisitions

540

640

590

⁽⁴⁾

$

38

⁽⁵⁾

7.00% Series D preferred stock repurchases

60

130

95

$

77

6.45% Series E preferred stock redemption

130

130

130

Total uses of capital

$

1,545

$

1,815

$

1,680

Incremental debt (included above):

Issuance of unsecured senior notes payable

$

425

$

425

$

425

Borrowings – secured construction loans

200

250

225

Repayments of secured notes payable

(5)

(10)

(8)

Repayment of unsecured senior term loan

(200)

(200)

(200)

$1.65 billion unsecured senior line of credit/other

(70)

(135)

(102)

Incremental debt

$

350

$

330

$

340

(1)

Primarily related to two non-real estate investments.

(2)

Includes charges aggregating $5.8 million related to the repurchases of 501,115 outstanding shares of our Series D Convertible Preferred Stock in 1Q17. Additionally, in March 2017, we announced the redemption of our Series E Redeemable Preferred Stock and recognized a $5.5 million preferred stock redemption charge. We completed the redemption in April 2017. Excludes any charges related to future repurchases of our Series D Convertible Preferred Stock.

(3)

Includes 2.1 million shares of common stock sold under our ATM program during 2Q17 for net proceeds of $241.8 million, the public offering of 2.1 million shares of our common stock in March 2017 for net proceeds of $217.8 million, and 4.8 million shares of our common stock subject to forward equity sales agreements with anticipated aggregate net proceeds of $495.5 million expected to be settled in 2H17, subject to adjustments as provided in the forward equity sales agreements. Also includes the estimated net cash distribution ranging from $35 million to $40 million in connection with the July 2017 sale of a condominium interest in 203,090 RSF of our unconsolidated real estate joint venture property at 360 Longwood Avenue and the related refinancing of the unconsolidated secured loan. See "Dispositions" on page 4 of this Earnings Press Release for additional information.

(4)

Acquisitions guidance increased by $160.0 million from $430.0 million in our May 1, 2017 forecast primarily for the acquisitions of 1450 Page Mill Road in our Greater Stanford submarket and 266 and 275 Second Avenue in our Route 128 submarket, which closed in June 2017 and July 2017, respectively. See "Acquisitions" on page 3 of this Earnings Press Release for additional information.

(5)

Represents the final two construction milestone installments expected to be paid during 2H17 for the 2016 acquisition of the remaining 49% interest in our unconsolidated real estate joint venture with Uber at 1455 and 1515 Third Street in our Mission Bay/SoMa submarket.

Three Months Ended

Six Months Ended

6/30/17

3/31/17

12/31/16

9/30/16

6/30/16

6/30/17

6/30/16

Revenues:

Rental

$

211,942

$

207,193

$

187,315

$

166,591

$

161,638

$

419,135

$

319,914

Tenant recoveries

60,470

61,346

58,270

58,681

54,107

121,816

106,704

Other income

647

⁽¹⁾

2,338

3,577

5,107

10,331

2,985

15,547

Total revenues

273,059

270,877

249,162

230,379

226,076

543,936

442,165

Expenses:

Rental operations

76,980

77,087

73,244

72,002

67,325

154,067

133,162

General and administrative

19,234

19,229

17,458

15,854

15,384

38,463

30,572

Interest

31,748

29,784

31,223

25,850

25,025

61,532

49,880

Depreciation and amortization

104,098

97,183

95,222

77,133

70,169

201,281

141,035

Impairment of real estate

203

—

16,024

8,114

156,143

203

185,123

Loss on early extinguishment of debt

—

670

—

3,230

—

670

—

Total expenses

232,263

223,953

233,171

202,183

334,046

456,216

539,772

Equity in earnings (losses) of unconsolidated real estate joint ventures

589

361

86

273

(146)

950

(543)

Gain on sales of real estate – rental properties

—

270

3,715

—

—

270

—

Gain on sales of real estate – land parcels

111

—

—

90

—

111

—

Net income (loss)

41,496

47,555

19,792

28,559

(108,116)

89,051

(98,150)

Net income attributable to noncontrolling interests

(7,275)

(5,844)

(4,488)

(4,084)

(3,500)

(13,119)

(7,530)

Net income (loss) attributable to Alexandria Real Estate Equities, Inc.'s stockholders

34,221

41,711

15,304

24,475

(111,616)

75,932

(105,680)

Dividends on preferred stock

(1,278)

(3,784)

(3,835)

(5,007)

(5,474)

(5,062)

(11,381)

Preferred stock redemption charge

—

(11,279)

(35,653)

(13,095)

(9,473)

(11,279)

(12,519)

Net income attributable to unvested restricted stock awards

(1,313)

(987)

(943)

(921)

(1,085)

(2,300)

(1,886)

Net income (loss) attributable to Alexandria Real Estate Equities, Inc.'s common 
  stockholders

$

31,630

$

25,661

$

(25,127)

$

5,452

$

(127,648)

$

57,291

$

(131,466)

Net income (loss) per share attributable to Alexandria Real Estate Equities, Inc.'s
  common stockholders – basic and diluted

$

0.35

$

0.29

$

(0.31)

$

0.07

$

(1.72)

$

0.64

$

(1.79)

Weighted-average shares of common stock outstanding:

Basic

90,215

88,147

80,800

76,651

74,319

89,186

73,452

Diluted

90,745

88,200

80,800

77,402

74,319

89,479

73,452

Dividends declared per share of common stock

$

0.86

$

0.83

$

0.83

$

0.80

$

0.80

$

1.69

$

1.60

(1)

Includes impairment charges aggregating $4.5 million primarily related to two non-real estate investments.

6/30/17

3/31/17

12/31/16

9/30/16

6/30/16

Assets

Investments in real estate

$

9,819,413

$

9,470,667

$

9,077,972

$

7,939,179

$

7,774,608

Investments in unconsolidated real estate joint ventures

58,083

50,457

50,221

133,580

132,433

Cash and cash equivalents

124,877

151,209

125,032

157,928

256,000

Restricted cash

20,002

18,320

16,334

16,406

13,131

Tenant receivables

8,393

9,979

9,744

9,635

9,196

Deferred rent

383,062

364,348

335,974

318,286

303,379

Deferred leasing costs

201,908

202,613

195,937

191,765

191,619

Investments

424,920

394,471

342,477

320,989

360,050

Other assets

205,009

206,562

201,197

206,133

104,414

Total assets

$

11,245,667

$

10,868,626

$

10,354,888

$

9,293,901

$

9,144,830

Liabilities, Noncontrolling Interests, and Equity

Secured notes payable

$

1,127,348

$

1,083,758

$

1,011,292

$

789,450

$

722,794

Unsecured senior notes payable

2,800,398

2,799,508

2,378,262

2,377,482

2,376,713

Unsecured senior line of credit

300,000

—

28,000

416,000

72,000

Unsecured senior bank term loans

547,639

547,420

746,471

746,162

945,030

Accounts payable, accrued expenses, and tenant security deposits

734,189

782,637

731,671

605,181

593,628

Dividends payable

81,602

78,976

76,914

66,705

67,188

Preferred stock redemption liability

—

130,000

—

—

—

Total liabilities

5,591,176

5,422,299

4,972,610

5,000,980

4,777,353

Commitments and contingencies

Redeemable noncontrolling interests

11,410

11,320

11,307

9,012

9,218

Alexandria Real Estate Equities, Inc.'s stockholders' equity:

7.00% Series D cumulative convertible preferred stock

74,386

74,386

86,914

161,792

188,864

6.45% Series E cumulative redeemable preferred stock

—

—

130,000

130,000

130,000

Common stock

921

899

877

768

766

Additional paid-in capital

5,059,180

4,855,686

4,672,650

3,649,263

3,693,807

Accumulated other comprehensive income (loss)

22,677

21,460

5,355

(31,745)

8,272

Alexandria Real Estate Equities, Inc.'s stockholders' equity

5,157,164

4,952,431

4,895,796

3,910,078

4,021,709

Noncontrolling interests

485,917

482,576

475,175

373,831

336,550

Total equity

5,643,081

5,435,007

5,370,971

4,283,909

4,358,259

Total liabilities, noncontrolling interests, and equity

$

11,245,667

$

10,868,626

$

10,354,888

$

9,293,901

$

9,144,830

Three Months Ended

Six Months Ended

6/30/17

3/31/17

12/31/16

9/30/16

6/30/16

6/30/17

6/30/16

Net income (loss) attributable to Alexandria's common stockholders

$

31,630

$

25,661

$

(25,127)

$

5,452

$

(127,648)

$

57,291

$

(131,466)

Depreciation and amortization

104,098

97,183

95,222

77,133

70,169

201,281

141,035

Noncontrolling share of depreciation and amortization from consolidated real estate JVs

(3,735)

(3,642)

(2,598)

(2,224)

(2,226)

(7,377)

(4,527)

Our share of depreciation and amortization from unconsolidated real estate JVs

324

412

655

658

651

736

1,394

Gain on sales of real estate – rental properties

—

(270)

(3,715)

—

—

(270)

—

Gain on sales of real estate – land parcels

(111)

—

—

(90)

—

(111)

—

Impairment of real estate – rental properties

203

—

3,506

6,293

88,395

203

88,395

Allocation to unvested restricted stock awards

(685)

(561)

—

(438)

—

(1,245)

—

Funds from operations attributable to Alexandria's common stockholders – diluted ⁽¹⁾

131,724