Alexandria Real Estate Equities' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Alexandria Real Estate Equities, Inc. (ARE)

Q1 2012 Earnings Call

May 2, 2012 03:00 p.m. ET

Executives

Rhonda Chiger – IR

Joel Marcus – Chairman, President and CEO

Dean Shigenaga – CFO, SVP and Treasurer

Stephen Richardson – Chief Operating Officer

Analysts

Ross Nussbaum – UBS

Anthony Paolone – JPMorgan

Quentin Velleley – Citi

Michael Bilerman – Citi

Conor Fennerty – Goldman Sachs

George Auerbach – ISI Group

Phillip Martin – Morningstar

John Stewart – Green Street Advisors

Presentation

Operator

Good day ladies and gentlemen, and welcome to the First Quarter 2011 Alexandria Real Estate Equities Incorporated Earnings Conference Call. My name is Karris, and I will be your coordinator 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 call is being recorded for replay purposes.

And now I would like to hand the call over to your host for today, Ms. Rhonda Chiger. Please proceed ma’am.

Rhonda Chiger

Thank you. Good afternoon. This conference call contains forward-looking statements within the meaning of the Federal Securities laws. Actual results to 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 welcome everybody to our actually 60 th quarterly conference call as an NYSE listed company and the 15 th anniversary this month of our IPO on May of ‘97. With me today are Dean Shigenaga, Steve Richardson, Peter Moglia and Krupal Raval.

It actually struck me driving into work today as I was listening to sports radio on The Dan Patrick Show that yesterday has gone and it’s all about today and tomorrow. So we’re going to focus with that as our theme focus on today and tomorrow.

So 1Q was actually a pretty solid quarter and we have the much work to do through the rest of 2012 and that’s really our laser focus. And I’m going to start-off really with balance sheet and capital allocation thoughts. We did have, I think, a very productive first quarter when it comes to the balance sheet as you saw from the both the press release and supplemental. The consummation of our debut bond offering, the perpetual preferred, the line credit, which we just closed and the – I think really hallmark, high quality JV capital or JV transaction with JV capital.

We’ve got much more to do through the balance of 2012 focused on suburban asset sales and as well as non – other non-core asset sales for our capital recycling program. Dean is going to talk referred to that. Obviously we’re focused on land sales and we’ll be reporting some in the quarters to come and potentially in other potential JV relationship that we are exploring.

But as you know or should know, asset sales on a lapse based world are more complex and time consuming then simple generic offers and that’s important to keep in mind. So as we think about some of our markets and this recycling program obviously Seattle, San Francisco, Merlin, Massachusetts are one areas that we’re focused on.

As many of you know from our press release and then the previously, we did complete a very high quality joint venture in the key Longwood Medical submarket, market we’ve held a critical probably one of the best locations in all that submarket highest concentration and density of research hospitals and really teaching platform. And we consider our main and main location truly a triple like location, which we’re always focused on and we will once we open the Longwood center we’ll be the best-in-class building there by far.

We’re looking and we’ll report next quarter at a strong yield and no net future capital outlay, which we were pleased about. We completed partial sale of the land at a gain and we match funded the future capital with both the construction loan and our JV capital as you know. We did make one small acquisition in a really one of the best locations in all of Research Triangle Park with a solid yield. It wasn’t something we were necessarily looking to do, but it was a very opportunistic situation and we took the opportunity and it will create that kind of a platform for other things we’re doing down there.

One key new build-to-suit that Steve is going to discuss a little bit more in South San Francisco which help moves another key parcel from our land bank in South San Francisco which has been a challenging submarket into development process for cash flow at a solid yield. It’s really one of the best locations in South San Francisco and it’s certainly is a best-in-class tenant. Steve will tell you a little bit more about that with whom we have very close relationship and we’re proud that they chose Alexandria over numerous other potential landlords in land sites down there or up there.

We continued to be very focused on attracting high quality tenants to key land parcels for NOI creation or liquefied certain land holdings and clearly our target is to lower non-income producing land as a percentage of GAV to about 15%.

When we move really to operations for the first quarter, it’s important to remember as many other teams have reported, the macro market still remains challenging and the political climate clearly in disarray. Following our fourth quarter highest volume leasing quarter in the history the company as well as the highest leasing year in the history of the company in 2011, we’re very pleased to report really solid leasing demand in the first quarter, 63 leases signed for 912,000 square feet and really balanced by region, 19% coming from San Diego, 24% from San Francisco, 15% from RTP, 13% from Maryland and 27% from Boston. This really confirms the solid life science demand really for our best-in-class properties and our best-in-class submarket adjacency locations.

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