Alexandria Real Estate Equities' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Alexandria Real Estate Equities, Inc. (ARE)

Q4 2011 Earnings Call

February 8, 2012 3:00 PM ET

Executives

Rhonda Chiger – IR

Joel Marcus – Chairman, President and CEO

Dean Shigenaga – CFO, SVP and Treasurer

Analysts

Sheila McGrath – KBW

Jay Habermann – Goldman Sachs

Jamie Feldman – Bank of America

Philip Martin – Morningstar

Ross Nussbaum – UBS

Michael Bilerman – Citi

Quentin Velleley – Citi

John Stewart – Green Street Advisors

Jason Ren – Morningstar

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Alexandria Real Estate Equities Incorporated Fourth Quarter and Year End 2011 Results Conference Call. My name is Tisha, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Rhonda Chiger. Please go proceed.

Rhonda Chiger

Good afternoon. This conference call contains forward-looking statements within the meaning of the federal securities laws. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s Form 10-K Annual Report and other periodic reports filed with the Securities and Exchange Commission.

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

Joel Marcus

Thanks, Rhonda, and good afternoon everybody. Happy New Year and thank you for joining us today for the fourth quarter and 2011 year end call. With me today are Dean Shigenaga and Krupal Raval. We hope that you like the new format and content of our press release and supplement. Hopefully, it will be very informative as well as a more user-friendly and simpler to follow document.

As we look forward to 2012, it appears promising as the Dow reached 12,878 yesterday at the close, the highest since pre-Lehman in May 2008. 2012 will be an important year for Alexandria. We will begin the transition of our balance sheet from the bank debt – the long-term unsecured bank debt – I’m sorry, long-term unsecured bond debt having received our investment grade ratings in mid-2011 from Moody’s and S&P.

And as many of you remember, the keys to the ratings by the two agencies were the size and leadership vary within our life science sector and our markets, a well diversified asset base by geography and tenant, modest leverage, and the size and quality of our unencumbered asset pool, our ability to manage liquidity, our ability to handle higher funding costs and the health of our operations and leasing all of which I think have proved true in this reporting period.

We will continue our expansion domination of our key urban and CBD adjacency cluster markets with our unique and important first-in-class and first mover advantage. And I think this was clearly demonstrated by the breadth and depth of our fourth quarter of 2011 and 2011 full year leasing success. We look forward to on-boarding significant cash flows later in 2012, as we move strategic non-income producing assets to cash flowing operating assets.

From fourth quarter 2010 to fourth quarter 2011, we increased the – the board increased the dividend approximately 40%. It’s likely the board will continue that approach of sharing increasing cash flows with our shareholders. As we proceed through 2012, it appears the fundamental drivers are in place to enable the continued expansion of the life science industry in our key cluster markets and for us to take advantage of that and certainly for Alexandria to continue to dominate and capture the plum requirements which we’ve done in San Diego, Greater Boston, and South San Francisco this past year. We have more requirements today in some of our key cluster markets than we can actually handle, however, as we reduce our non-income producing assets, this will enable us to pursue more of these key opportunities.

We hope investors focus on the fundamentals of ARE as a very high quality, innovative company with uniquely built-in platform for growth in net operating income, earnings are best-in-class assets in irreplaceable locations with solid tenant demand for our unique lab space.

For 2011, again, we are very pleased and proud to report the highest leasing quarter and year in the history of the company. And again, it confirms I think the meaning and the impact of our leading franchise in the life science industry. For the fourth quarter, we leased over 1.1 million square feet and for the year about 3.4 million square feet, and almost 1 million square feet out of development and redevelopment.

We have a solid flow of requirements. This past year, the three biggest leases for development and redevelopment space were two in San Diego and one in Cambridge, of the 650,000 square feet of renewals and re-lease space, San Diego where we clearly dominate contribute about 50% and Greater Boston about 23%. For the 492,000 square feet of redevelopment and development space, San Diego contributed 51% and 21% for Greater Boston.

Some of the, I think, most notable leasing accomplishments certainly during the last quarter was the leasing of our new 43,000 square foot University Town Center Drive property. Our – the initiation, the leasing, and the initiation of our build-to-suit for Biogen Idec in East Cambridge are 100% pre-leasing of small build-to-suit for a top pharma, which we were really compelled to do in Canada. And the lease-up of from 43% to 91% of our flagship Campus Pointe asset in UTC, San Diego with an existing credit tenant in another market, but now one of our dominant tenants in San Diego is Celgene.

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