Alexandria Real Estate Equities CEO Discusses Q3 2010 Results – Earnings Call Transcript

Alexandria Real Estate Equities, Inc. (

ARE

)

Q3 2010 Earnings Conference Call

November 3, 2010 3:00 PM ET

Executives

Rhonda Chiger – IR

Joel Marcus – Chairman, CEO and President

Steve Richardson – SVP

Dean Shigenaga – CFO

Analysts

Michael Bilerman – Citi

Anthony Paolone – JPMorgan

Jamie Feldman – Bank of America/Merrill Lynch

Sheila McGrath – KBW

Suzanne Kim – Credit Suisse

John Stewart – Greenstreet Advisors

Presentation

Operator

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Good day and welcome everyone to the Alexandria Real Estate Equities Incorporated third quarter 2010 results conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Rhonda Chiger. Please go ahead.

Rhonda Chiger

Thank you, good afternoon. This conference call includes forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 as amended and Section 21-E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include without limitation, statements regarding our 2010 earnings per share diluted attributable to Alexandria Real Estate Equities common stockholders, 2010 FFO per share diluted attributable to Alexandria Real Estate Equities common stockholders, the business plans of certain tenants and the expected impact of the retirement or conversion of our unsecured convertible notes. Our actual results may differ materially from those projected in such forward-looking statements.

Factors that might cause such a difference include, without limitation, our failure to obtain capital, debt construction financing and/or equity or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, our failure to successfully operate or lease acquired properties, decreased rental rates or increased vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, general and local economic conditions and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission.

All forward-looking statements are made as of the date of this call and we assume no obligation to update this information. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements and risks to our business in general, please refer to our SEC filings.

And now, I would like to turn the call over to Joel Marcus. Please go ahead.

Joel Marcus

Thank you, Rhonda and welcome everybody to the third quarter conference call. With me are Dean Shigenaga, Krupal Raval and Steve Richardson. So before we get into the quarter, I wanted to make a few macro comments that we do. One of the most possible main street versus Wall Street kinds in the history of the country is ongoing in the so called recovery which is fallen flat is continuing. I think a great example of this is if you look at Friday, October 15th Wall Street Journal by Ken Langone, former founder of Home Depot quoted, if we tried to start Home Depot today it’s a storm called certainty that it would never get off the ground.

This is an unfortunate message in today’s environment. I think the message to the yesterday’s election is simple, help businesses, hire people, cut taxes and (inaudible). In light of this continuing tough macro environment and the reality around it are Alexandria’s creation of our mission critical lab space niche in the insurance store unique strategy. Both in good times and bad, have served us well. We’ve successfully managed and consistently implemented our multitask strategy, focused heavily on a number of critical areas. Positive same property growth and positive mark-to-market on a leased roles to ensure safety and stability of cash flows.

A strong effort at positive leasing of vacant space, management of expenditures both G&A and CapEx and the discipline (inaudible) a strong focus on return on invested capital from redeveloping non-lab space and lab space. And a staying keen focus on a return – high return on invested capital from development of lab space. And on a go-forward basis, you’ll see us really with a slower throughput of redevelopment and development on a spec basis. The world has changed considerably. So still is our business plan. And then also selective acquisitions.

Pleased that our total return from IPO in May 1997 to September 30 approximates 512% and compares very favorably with other great performers such as bought some properties at 556%. We’re pleased with this long-term positive performance and confirms our disciplined risk management by focusing on high quality facilities in the best AAA adjacency locations in the best life science sub market, and also in the most favorable supply constrain locations with significant barriers to tenant exit as well.

A few words about our unique differentiated and consistently applied strategy. We have and will continue to selective acquire key assets which increase our penetration in our selected markets importantly increasing our NOI with a solid return on investment capital and with a – where appropriate a value add component. We have an highly disciplined manner really avoided lower quality assets in secondary locations. We try to avoid way above market leases with near-term lease roles, questionable tenant concentrations and purchases substantially above market or too high across per square foot. And also obviously avoiding buying any land at above market prices.

Our shift from pre-crash speculative development to a kind of post-crash build a suite with quality tenants is underway. We continued to pursue sales in non-income producing land parcels. We’ve maintained a high quality and well diversified client tenant base, in the only industry which really has a potential to managing lower overall healthcare cost and that shouldn’t be left unnoted by all of us a critical point.

Obviously, to ensure the stability and growth of our dividends and to continue to enhance our balance sheet to our access to a variety of capital sources. Two final comments. One big pharma is in fact now winning the war on drugs, aggressively bridging patent cliff and pipeline gaps, in fact R&D is beginning to turn the corner and productivity is improving, late-stage development has more than one in three chance of reaching the market versus the one in four in 2007, and a greater use of process outsourcing to triple returns on investments.

It is also important to note that therapeutic discovery tax credit of about $1 billion this year which was enacted in the Obama Healthcare law allocated $281 million to California companies in the $109 to Massachusetts companies.

So on to the third quarter operating and financial results. We really had about everything this quarter from acquisitions and developments from strong leasing, good fundamentals, continued deleveraging and sales of the important land parcel and Dean will detail a lot of this. We did report $1.11 FFO per diluted share excluding the loss on debt extinguishment.

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