UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 30, 2017


ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)

Maryland
 
1-12993
 
95-4502084
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)




385 East Colorado Boulevard, Suite 299
 
 
Pasadena, California
 
91101
(Address of principal executive offices)
 
(Zip Code)


Registrant’s telephone number, including area code: (626) 578-0777
 

N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o               Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o               Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o               Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o               Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4 (c))








Item 2.02.  Results of Operations and Financial Condition.

On January 30, 2017, Alexandria Real Estate Equities, Inc. (the “Company”) issued a press release entitled “Alexandria Real Estate Equities, Inc. Reports Fourth Quarter and Year Ended December 31, 2016 Financial and Operating Results.”  The press release referred to certain supplemental information that is available on the Company’s website at www.are.com.  A copy of the press release and supplemental information are attached hereto as Exhibit 99.1.

The information contained in this Item 2.02, including the exhibit referenced herein, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section.  Such information shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Item 9.01.  Financial Statements and Exhibits.

(d)  Exhibits.

99.1                Alexandria Real Estate Equities, Inc.’s Earnings Press Release and Supplemental Information for the Fourth Quarter and Year Ended December 31, 2016.

Forward-looking Statements

This current report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements include words such as “forecast,” “guidance,” “projects,” “estimates,” “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” “seeks,” “should,” or “will,” or the negative of these words or similar words.  Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in each such statement.  A number of important factors could cause actual results to differ materially from those included within or contemplated by the forward-looking statements, including, but not limited to, the factors described in the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.  The Company does not undertake any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any other document, whether as a result of new information, future events, or otherwise.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
ALEXANDRIA REAL ESTATE EQUITIES, INC.
 
 
 
 
 
 
January 30, 2017
 
By:
/s/ Joel S. Marcus
 
 
 
 
Joel S. Marcus
 
 
 
 
Chairman/Chief Executive Officer
 
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
 
 
By:
/s/ Dean A. Shigenaga
 
 
 
 
Dean A. Shigenaga
 
 
 
 
Chief Financial Officer
 
 
 
 
(Principal Financial Officer)
 




EXHIBIT INDEX

Exhibit
Number        Exhibit Title    
99.1        Alexandria Real Estate Equities, Inc.’s Earnings Press Release and Supplemental Information for the Fourth Quarter and Year Ended December 31, 2016.


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Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2017



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Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2017
i



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(1)    As of December 31, 2016.
(2)    Decline in annual rental revenue from investment-grade tenants primarily due to the delivery of 422,980 RSF to Uber Technologies, Inc. during 4Q16. As of June 2016, the latest valuation date, Uber had an estimated value of approximately $68 billion.
(3)    Represents annual rental revenue in effect as of December 31, 2016.


 
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2017
ii
 
 
 
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Table of Contents
December 31, 2016
 
 

 
Page
EARNINGS PRESS RELEASE
 
Dispositions in 2016
Acquisitions in 2016
SUPPLEMENTAL INFORMATION
 
Operating Information
 
 
 
Page
SUPPLEMENTAL INFORMATION (continued)
 
Investments in Real Estate
 
Balance Sheet Management
 


This document includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Please see page 7 of our Earnings Press Release for further information.
 
This document is not an offer to sell or a solicitation to buy securities of Alexandria Real Estate Equities, Inc. Any offers to sell or solicitations to buy our securities shall be made only by means of a prospectus approved for that purpose. Unless otherwise indicated, the “Company,” “Alexandria,” “ARE,” “we,” “us,” and “our” refer to Alexandria Real Estate Equities, Inc. and its consolidated subsidiaries.

 
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2017
iii
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Alexandria Real Estate Equities, Inc.
Reports
Fourth Quarter and Year Ended December 31, 2016 Financial and Operating Results
Solid 4Q16 and 2016 Internal and External Growth

PASADENA, Calif. – January 30, 2017 – Alexandria Real Estate Equities, Inc. (NYSE:ARE)
announced financial and operating results for the fourth quarter and year ended December 31, 2016.

Key highlights:

Solid internal growth
•
Total revenues of $249.2 million, up 11.3%, for 4Q16, compared to $224.0 million for 4Q15 and total revenues of $921.7 million, up 9.3%, for 2016, compared to $843.5 million for 2015;
•Solid leasing activity in light of minimal contractual lease expirations at the beginning of 2016 and a highly leased value-creation pipeline:
 
 
4Q16
 
2016
Total leasing activity – RSF
 
1,501,376

 
3,390,067

Lease renewals and re-leasing of space:
 
 
 
 
Rental rate increases
 
25.8%

 
27.6%

Rental rate increases (cash basis)
 
9.5%

 
12.0%

RSF
 
671,222

 
2,129,608

•
Same property net operating income growth:
•
3.2% and 4.9% (cash basis) for 4Q16, compared to 4Q15
•
4.7% and 6.0% (cash basis) for 2016, compared to 2015

Solid external growth; disciplined allocation of capital to highly leased value-creation pipeline
•
Deliveries of Class A properties in urban innovation clusters from our value-creation pipeline is expected to significantly increase net operating income:
Delivery Date
 
RSF
 
Percentage Leased
 
Incremental Annual Net Operating Income
YTD 3Q16
 
1,003,795

 
99%
 
$55 million
4Q16
 
890,133

 
89%
 
$37 million
2017
 
1,405,117

 
80%
 
$95 million to $105 million

•
4Q16 key development, redevelopment, and other projects placed into service:
•
422,980 RSF, 100% leased to Uber Technologies, Inc. at 1455 and 1515 Third Street;
•
305,006 RSF, 100% leased to Eli Lilly and Company at 10290 Campus Point Drive;
•
61,755 RSF, 100% leased to Otonomy, Inc. at 4796 Executive Drive; and
•
Executed a 293,855 RSF 15-year build-to-suit lease with Merck & Co., Inc. at 213 East Grand Avenue in our South San Francisco submarket; we anticipate commencing development 2Q17.

 

Increased common stock dividend
•
Common stock dividend for 2016 of $3.23 per common share, up 18 cents, or 6%, over 2015; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.
Operating results
4Q16
 
4Q15
 
Change
 
2016
 
2015
 
Change
Net (loss) income attributable to Alexandria’s common stockholders – diluted:
In Millions
$
(25.1
)
 
$
35.1

 
N/A

 
$
(151.1
)
 
$
116.9

 
N/A

Per Share
$
(0.31
)
 
$
0.49

 
N/A

 
$
(1.99
)
 
$
1.63

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
Funds from operations attributable to Alexandria’s common stockholders – diluted, as adjusted:
In Millions
$
115.5

 
$
95.8

 
20.6
%
 
$
421.3

 
$
375.8

 
12.1
%
Per Share
$
1.42

 
$
1.33

 
6.8
%
 
$
5.51

 
$
5.25

 
5.0
%
Items included in net (loss) income 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
4Q16
 
4Q15
 
4Q16
 
4Q15
 
2016
 
2015
 
2016
 
2015
Gain on sales of real estate – rental properties and land parcels
$
3.7

 
$
12.4

 
$
0.05

 
$
0.17

 
$
3.8

 
$
12.4

 
$
0.05

 
$
0.17

Impairment of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate – rental properties
(3.5
)
 
(8.7
)
 
(0.04
)
 
(0.12
)
 
(98.2
)
 
(23.3
)
 
(1.29
)
 
(0.33
)
Real estate – land parcels and non-real estate investments
(12.5
)
 
—

 
(0.16
)
 
—

 
(113.5
)
 
—

 
(1.49
)
 
—

Loss on early extinguishment of debt
—

 
—

 
—

 
—

 
(3.2
)
 
(0.2
)
 
(0.04
)
 
—

Preferred stock redemption charge
(35.7
)
 
—

 
(0.44
)
 
—

 
(61.3
)
 
—

 
(0.81
)
 
—

Total
$
(48.0
)
 
$
3.7

 
$
(0.59
)
 
$
0.05

 
$
(272.4
)
 
$
(11.1
)
 
$
(3.58
)
 
$
(0.16
)
Weighted-average shares of common stock outstanding – diluted
80.8

 
71.8

 
 
 
 
 
76.1

 
71.5

 
 
 
 

Core operating metrics and internal growth

•
Percentage of annual rental revenue from investment-grade tenants as of 4Q16: 49%
•
Percentage of annual rental revenue from Class A properties in AAA locations as of 4Q16: 79%
•
Occupancy for operating properties in North America at 96.6% as of 4Q16
•
Operating margin at 71% for 4Q16
•
Adjusted EBITDA margin at 67% for 4Q16
•
See “Solid internal growth” in the Key Highlights section (left side of page) of this Earnings Press Release for information on our leasing activity and same property net operating income growth.


 
1
 
 
 
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Fourth Quarter and Year Ended December 31, 2016, Financial and Operating Results (continued)
December 31, 2016
 
 

External growth

Disciplined allocation of capital to visible, multiyear, highly leased value-creation pipeline
•
See page 1 of this earnings press release for key highlights.

Strategic acquisitions
•
In November 2016, we acquired the remaining 49% interest in our real estate joint venture with Uber Technologies, Inc. for $90.1 million. The real estate joint venture owned land parcels located at 1455 and 1515 Third Street and a parking garage structure in our Mission Bay/SoMa submarket of San Francisco.
•
The former real estate joint venture was expected to complete the development of two new Class A properties in 2018, pursuant to leases with Uber.
•
As a result of the acquisition of the remaining 49% ownership interest, we own a 100% fee simple interest in both land parcels and the parking garage and are no longer obligated to fund the development of the two Class A properties.
•
In connection with the acquisition of the remaining interest in the land and parking garage, we leased these assets to Uber for 75 years, beginning in November 2016. Uber will develop and own 100% of the two Class A properties on the land parcels.
•
The $90.1 million purchase price includes $56.8 million payable in 2017.
•
Initial stabilized yields on our total project investment of $155.0 million (including our investment in our initial 51% interest) are 14.4% and 7.0% (cash basis). Cash rents commence in February 2017.
•
In November 2016, we acquired One Kendall Square, a 644,771 RSF, nine-building collaborative life science and technology campus located in the east side of our Cambridge submarket of Greater Boston, for a purchase price of $725.0 million, including the assumption of a $203.0 million secured note payable. The campus is 97.3% occupied, and we expect to achieve an initial stabilized yield (cash basis) of 6.2% upon completion of near-term renewals and re-leasing of space (see below). This acquisition provides us with a significant opportunity to increase cash flows through the following:
•
$47/RSF average in-place annual rents (mix of office gross rents and lab triple net rents), significantly below-market;
•
55% contractual lease expirations through 2019;
•
Conversion of campus office space into office/laboratory space through redevelopment; and
•
Entitled land parcel for near-term ground-up development of an additional building aggregating 172,500 square feet.
•
In October 2016, we acquired Torrey Ridge Science Center, a 294,993 RSF, three-building collaborative life science campus located in the heart of our Torrey Pines submarket of San Diego, for a purchase price of $182.5 million. The campus is 87.1% occupied, and we expect to achieve an initial stabilized yield (cash basis) of 6.8% at stabilization in 1H18 upon completion of near-term renewals/re-leasing of acquired below-market leases and the conversion of 75,953 RSF of existing shell and office space into office/laboratory space.

Strategic dispositions
•
During 4Q16, we completed the dispositions of our remaining operating properties and land parcels in India for an aggregate sales price of approximately $53.4 million. As of December 31, 2016, we had no remaining investments in real estate in India.

 
Balance sheet management

Improvement in balance sheet leverage and liquidity
•
$14.2 billion total market capitalization as of 4Q16;
•
$2.2 billion of liquidity as of 4Q16;
•
Net debt to Adjusted EBITDA:
•
4Q16 annualized: 6.1x; 4Q16 trailing 12 months: 6.6x;
•
4Q17 annualized target range: 5.5x to 6.0x;
•
Fixed-charge coverage ratio:
•
4Q16 annualized: 3.8x; 4Q16 trailing 12 months: 3.6x;
•
4Q17 annualized target: greater than 4.0x;
•
Repurchased 3.0 million shares of our 7.00% Series D cumulative convertible preferred stock at an aggregate price of $108.2 million, or $36.12 per share, and recognized a preferred stock redemption charge of $35.7 million in 4Q16;
•
In October 2016, we filed an “at the market” common stock offering program, which allows us to sell up to an aggregate of $600.0 million of our common stock. During 4Q16, we sold an aggregate of 3.4 million shares of common stock for gross proceeds of $354.2 million, or $105.73 per share, and net proceeds of approximately $348.4 million;
•
In December 2016, we sold an aggregate of 7.5 million shares of our common stock to settle our forward equity sales agreements executed in July 2016. Net proceeds, after issuance costs and underwriters’ discount, of $715.9 million were used to fund the acquisition of One Kendall Square, located in East Cambridge, to lower net debt to Adjusted EBITDA by 0.3x, and fund construction;
•
Raised $380.9 million in 2016 from (i) completed dispositions aggregating $274.6 million and (ii) funding from our joint venture partner aggregating $106.3 million, primarily in 2016, related to the sale of a partial interest in 10290 Campus Point Drive. See page 4 of this earnings press release for additional information;
•
Current and future value-creation pipeline was 10% of gross investments in real estate in North America as of 4Q16, with a 4Q17 target of less than 10%; and
•
4% unhedged variable-rate debt as a percentage of total debt as of 4Q16.

Sustainability and health and wellness

•
51% of annual rental revenue expected from Leadership in Energy and Environmental Design (“LEED”) certified projects upon completion of in-process projects.
•
In November 2016, we became the first REIT to be named a first-in-class Fitwel Champion to promote health and wellness in the workplace and to earn Fitwel building certifications.

Subsequent events in January 2017

•
Acquired land parcels aggregating 2.6 acres at 88 Bluxome Street in our Mission Bay/SoMa submarket of San Francisco for a purchase price of $130.0 million. We are currently obtaining entitlements for the development of this site and anticipate an aggregate of 1,070,925 RSF to be available for construction of two buildings in separate phases. We have leased the property back to the seller until we obtain entitlements.
•
Executed lease extensions with Novartis AG aggregating 302,626 RSF at 100 and 200 Technology Square in our Cambridge submarket of Greater Boston.


 
2
 
 
 
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Incremental Annual Net Operating Income from Development and Redevelopment of New Class A Properties
December 31, 2016
 
 






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(1)
Represents incremental annual net operating income upon stabilization of our development and redevelopment of new Class A properties, including only our share of real estate joint venture projects. RSF and percentage leased represent 100% of each property.

 
3
 
 
Dispositions in 2016
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December 31, 2016
(Dollars in thousands)
 
 

 
 
 
 
 
 
 
Net Operating
Income
 
 
Net Operating Income
(Cash)
 
 
Classification
 
Property/Market/Submarket
 
Date of Sale
 
RSF/Acres
 
(1) 
 
(1) 
 
Construction Funding
 
Asset
Sales
 
Dispositions completed 1Q16 to 3Q16:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16020 Industrial Drive/Maryland/Gaithersburg
 
4/21/2016
 
71,000 RSF
 
$
1,022

 
 
$
896

 
 
$
—

 
$
6,400

 
Land parcels in North America (Gaithersburg/Non-cluster)
 
Various
 
5.9 acres
 
N/A

 
 
N/A

 
 
—

 
 
8,700

 
Land parcels in India
 
Various
 
28 acres
 
N/A

 
 
N/A

 
 
—

 
 
12,767

(2) 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
27,867

 
Two joint ventures – 45% partial interest sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10290 Campus Point Drive/San Diego/University Town Center
 
6/29/16
 
305,006 RSF
 
$
15,832

(3) 
 
$
14,665

(3) 
 
106,263

(4) 
 
—

 
10300 Campus Point Drive/San Diego/University Town Center
 
12/15/16
 
449,759 RSF
 
 
—

 
 
150,008

(4) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dispositions completed in 4Q16:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
306 Belmont Street and 350 Plantation Street/Greater Boston/
Route 495/Worcester
 
12/9/16
 
90,690 RSF
 
$
1,558

 
 
$
1,348

 
 
—

 
 
17,550

 
560 Eccles Avenue/San Francisco/South San Francisco
 
12/21/16
 
3.3 acres
 
N/A

 
 
N/A

 
 
—

 
 
12,000

 
7990 Enterprise Street/Canada
 
12/15/16
 
66,000 RSF
 
965

 
 
957

 
 
—

 
 
13,836

 
Operating properties and land parcels in India
 
4Q16
 
566,355 RSF / 168 acres
 
363

 
 
391

 
 
—

 
 
53,364

(2) 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
96,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
106,263

 
$
274,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Represents annualized amounts for the quarter ended prior to the date of sale. Cash net operating income excludes straight-line rent and amortization of acquired below-market leases.
(2)
Represents the completion of the sale of all of our investments in real estate in India. During 2016, we recognized impairments of real estate related to the dispositions of assets in Asia aggregating $194.3 million. Refer to page 43 of our Supplemental Information for additional information.
(3)
Represents a 45% partial interest share of net operating income and cash net operating income: (i) anticipated upon stabilization of the redevelopment of 10290 Campus Point Drive and (ii) realized for 10300 Campus Point Drive during 3Q16.
(4)
Aggregate proceeds of $256.3 million, including gross proceeds of $68.6 million received as of 3Q16, $153.0 million received during 4Q16, and additional future proceeds of $34.7 million to be received primarily in 1Q17.



 
4
 
 
Acquisitions in 2016
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December 31, 2016
(Dollars in thousands)
 
 


 
 
 
 
Date of Purchase
 
 
 
Square Footage
 
 
 
Occupancy
 
Unlevered Yields
 
Property/Market/Submarket
 
Type
 
 
Number of Properties
 
Operating
 
Future
Value-Creation
 
Purchase Price
 
 
Initial Stabilized Cash Basis
 
Initial Stabilized
 
Torrey Ridge Science Center/San Diego/Torrey Pines
 
Operating
 
10/3/16
 
3
 
294,993

 
—

 
$
182,500

 
87.1
%
 
6.8
%
(1) 
7.1
%
(1) 
One Kendall Square/Greater Boston/Cambridge (2)
 
Operating/Development
 
11/7/16
 
9
 
644,771

 
172,500

 
725,000

 
97.3
%
 
6.2
%
(3) 
6.4
%
(3) 
1455 and 1515 Third Street/San Francisco/Mission Bay/SoMa
(acquisition of remaining 49% interest)
 
Operating
 
11/10/16
 
2
 
422,980

 
—

 
90,100

(4) 
100.0
%
 
N/A

(5) 
N/A

(5) 
 
 
 
 
 
 
14
 
1,362,744

 
172,500

 
$
997,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
At stabilization in 1H18, upon completion of near-term renewals/re-leasing of acquired below-market leases and the conversion of 75,953 RSF of existing shell and office space into office/laboratory space.
(2)
Refer to pages 5-7 of our Earnings Press Release and Supplemental Information for the Second Quarter Ended June 30, 2016, for additional discussion on our acquisition of One Kendall Square.
(3)
Upon stabilization at completion of the ground-up development of our entitled land parcel.
(4)
The purchase price includes $56.8 million payable in 2017.
(5)
See page 2 of our Earnings Press Release for discussion of our overall project investment and yields after our acquisition of the 49% noncontrolling interest.

 
5
 
 
Guidance
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December 31, 2016
(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, 2017. There can be no assurance that actual amounts will be materially higher or lower than these expectations. See our discussion of “forward-looking statements” on page 7.

Earnings per Share and Funds From Operations per Share Attributable to Alexandria’s Common Stockholders – Diluted 
Earnings per share
 
$1.49 to $1.69
Depreciation and amortization (1)
 
 
4.45
 
Allocation to unvested restricted stock awards
 
 
(0.04)
 
Funds from operations per share
 
$5.90 to $6.10
 
 
 
 
 
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
 
18.5%

 
21.5%

Rental rate increases (cash basis)
 
6.5%

 
9.5%

Same property performance:
 
 
 
 
Net operating income increase
 
1.5%

 
3.5%

Net operating income increase (cash basis)
 
5.5%

 
7.5%

 
 
 
 
 
Straight-line rent revenue (4)
 
$
107

 
$
112

General and administrative expenses (5)
 
$
68

 
$
73

Capitalization of interest
 
$
42

 
$
52

Interest expense
 
$
131

 
$
141

 
Key Credit Metrics
 
2017 Guidance
Net debt to Adjusted EBITDA – 4Q17 annualized
 
5.5x to 6.0x
Net debt and preferred stock to Adjusted EBITDA – 4Q17 annualized
 
5.5x to 6.0x
Fixed-charge coverage ratio – 4Q17 annualized
 
Greater than 4.0x
Value-creation pipeline percentage of gross real estate as of December 31, 2017
 
Less than 10%
 
 
 
Key Sources and Uses of Capital
 
Range
 
Midpoint
Sources of capital:
 
 
 
 
 
 
Net cash provided by operating activities after dividends
 
$
115

 
$
135

 
$
125

Incremental debt
 
460

 
440

 
450

Real estate dispositions and common equity (2)
 
450

 
720

 
585

Total sources of capital
 
$
1,025

 
$
1,295

 
$
1,160

Uses of capital:
 
 
 
 
 
 
Construction
 
$
815

 
$
915

 
$
865

Acquisitions (3)
 
150

 
250

 
200

7.00% Series D preferred stock repurchases
 
60

 
130

 
95

Total uses of capital
 
$
1,025

 
$
1,295

 
$
1,160

Incremental debt (included above):
 
 
 
 
 
 
Issuance of unsecured senior notes payable
 
$
375

 
$
475

 
$
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
 
90

 
(75
)
 
8

Incremental debt
 
$
460

 
$
440

 
$
450





(1)
Includes depreciation related to the final purchase price allocations for the acquisitions of Torrey Ridge Science Center and One Kendall Square that closed in 4Q16.
(2)
Includes our share of the proceeds from the anticipated sale of a condo interest in 203,090 RSF of our unconsolidated real estate joint venture development project at 360 Longwood Avenue, aggregating approximately $65.7 million, pursuant to the exercise of a purchase option by the anchor tenant. The sale is expected to close in mid-2017.
(3)
Includes the acquisition of 88 Bluxome Street in our Mission Bay/SoMa submarket of San Francisco for $130.0 million, which closed in January 2017, and $56.8 million related to 1455 and 1515 Third Street in our Mission Bay/SoMa submarket (see page 5).
(4)
Straight-line rent revenue includes free rent and rent escalations. For competitive reasons, we do not provide disclosure of free rent included in straight-line rent revenue on expected deliveries in anticipation of future negotiations with potential tenants. During 4Q16, approximately 84% of straight-line rent revenue related to initial free rent concessions granted on value-creation projects recently placed into service. Initial free rent concessions granted on value-creation projects recently placed into service as a percentage of straight-line rent revenue for the year ending December 31, 2017 is expected to be consistent with 4Q16.
(5)
General and administrative expenses as a percentage of total assets and total revenues for the year ending December 31, 2017, are expected to be consistent with 2016.

 
6
 
 
 
q416headerlogo.jpg
Earnings Call Information and About the Company
December 31, 2016
 
 


We will host a conference call on Tuesday, January 31, 2017, 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 31, 2016. To participate in this conference call, dial (866) 524-3160 or (412) 317-6760 shortly before 3:00 p.m. ET/noon PT and ask the operator to join the Alexandria Real Estate Equities, Inc. call. The audio webcast can be accessed at www.are.com, in the “For Investors” section. A replay of the call will be available for a limited time from 5:00 p.m. ET/2:00 p.m. PT on Tuesday, January 31, 2017. The replay number is (877) 344-7529 or (412) 317-0088, and the confirmation code is 10096814.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the fourth quarter and year ended December 31, 2016, is available in the “For Investors” section of our website at www.are.com or by following this link: http://www.are.com/fs/2016q4.pdf.

For any questions, please contact Joel S. Marcus, chairman, chief executive officer, and founder, at (626) 578-9693 or Dean A. Shigenaga, executive vice president, chief financial officer, and treasurer, at (626) 578-0777.

About the Company

Alexandria Real Estate Equities, Inc. (NYSE:ARE) is an urban office real estate investment trust (“REIT”) uniquely focused on collaborative life science and technology campuses in AAA innovation cluster locations, with a total market capitalization of $14.2 billion and an asset base in North America of 25.2 million square feet as of December 31, 2016. The asset base in North America includes 19.9 million RSF of operating properties and development and redevelopment of new Class A properties (under construction or pre-construction), and 5.3 million square feet of future ground-up development projects. Alexandria pioneered this niche in 1994 and has since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science and technology campuses that provide its innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity and success. We believe these advantages result in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit www.are.com.

***********

This document includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding our 2017 earnings per share attributable to Alexandria’s common stockholders – diluted, 2017 funds from operations per share attributable to Alexandria’s common stockholders – diluted, net operating income, and our projected sources and uses of capital. You can identify the forward-looking statements by their use of forward-looking words, such as “forecast,” “guidance,” “projects,” “estimates,” “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” “seeks,” “should,” or “will,” or the negative of those words or similar words. These forward-looking statements are based on our current expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts, as well as a number of assumptions concerning future events. There can be no assurance that actual results will not be materially higher or lower than these expectations. These statements are subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from the results discussed in the 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 place into service and lease any properties undergoing development or redevelopment and our existing space held for future development or redevelopment (including new properties acquired for that purpose), our failure to successfully operate or lease acquired properties, decreased rental rates, increased vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, adverse general and local economic conditions, an unfavorable capital market environment, decreased leasing activity or lease renewals, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission (“SEC”). Accordingly, you are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are made as of the date of this earnings press release, and unless otherwise stated, we assume no obligation to update this information and expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 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, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.


 
7
 
 
Consolidated Statements of Income
q416headerlogo.jpg
December 31, 2016
(In thousands, except per share amounts)
 
 

 
 
Three Months Ended
 
Year Ended
 
 
12/31/16

9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
 
12/31/16
 
12/31/15
Revenues:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Rental
 
$
187,315

 
$
166,591

 
$
161,638

 
$
158,276

 
$
158,100

 
$
673,820

 
$
608,824

Tenant recoveries
 
58,270

 
58,681

 
54,107

 
52,597

 
54,956

 
223,655

 
209,063

Other income
 
3,577

 
5,107

 
10,331

 
5,216

 
10,899

 
24,231

 
25,587

Total revenues
 
249,162

 
230,379

 
226,076

 
216,089

 
223,955

 
921,706


843,474

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental operations
 
73,244

 
72,002

 
67,325

 
65,837

 
68,913

 
278,408

 
261,232

General and administrative
 
17,458

 
15,854

 
15,384

 
15,188

 
15,102

 
63,884

 
59,621

Interest
 
31,223

 
25,850

 
25,025

 
24,855

 
28,230

 
106,953

 
105,813

Depreciation and amortization
 
95,222

 
77,133

 
70,169

 
70,866

 
72,245

 
313,390

 
261,289

Impairment of real estate
 
16,024

 
8,114

 
156,143

 
28,980

 
8,740

 
209,261

 
23,250

Loss on early extinguishment of debt
 
—

 
3,230

 
—

 
—

 
—

 
3,230

 
189

Total expenses
 
233,171

 
202,183

 
334,046

 
205,726

 
193,230

 
975,126

 
711,394

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings (losses) of unconsolidated real estate joint ventures
 
86

 
273

 
(146
)
 
(397
)
 
(174
)
 
(184
)
 
1,651

Gain on sales of real estate – rental properties
 
3,715

 
—

 
—

 
—

 
12,426

 
3,715

 
12,426

Income (loss) from continuing operations
 
19,792

 
28,469

 
(108,116
)
 
9,966

 
42,977

 
(49,889
)
 
146,157

Loss from discontinued operations
 
—

 
—

 
—

 
—

 
—

 
—

 
(43
)
Gain on sales of real estate – land parcels
 
—

 
90

 
—

 
—

 
—

 
90

 
—

Net income (loss)
 
19,792

 
28,559

 
(108,116
)
 
9,966

 
42,977

 
(49,799
)
 
146,114

Net income attributable to noncontrolling interests
 
(4,488
)
 
(4,084
)
 
(3,500
)
 
(4,030
)
 
(972
)
 
(16,102
)
 
(1,897
)
Net income (loss) attributable to Alexandria Real Estate Equities, Inc.’s stockholders
 
15,304

 
24,475

 
(111,616
)
 
5,936

 
42,005

 
(65,901
)
 
144,217

Dividends on preferred stock
 
(3,835
)
 
(5,007
)
 
(5,474
)
 
(5,907
)
 
(6,246
)
 
(20,223
)
 
(24,986
)
Preferred stock redemption charge
 
(35,653
)
 
(13,095
)
 
(9,473
)
 
(3,046
)
 
—

 
(61,267
)
 
—

Net income attributable to unvested restricted stock awards
 
(943
)
 
(921
)
 
(1,085
)
 
(801
)
 
(628
)
 
(3,750
)
 
(2,364
)
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
 
$
(25,127
)
 
$
5,452

 
$
(127,648
)
 
$
(3,818
)
 
$
35,131

 
$
(151,141
)
 
$
116,867

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted
 
$
(0.31
)
 
$
0.07

 
$
(1.72
)
 
$
(0.05
)
 
$
0.49

 
$
(1.99
)
 
$
1.63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
80,800

 
76,651

 
74,319

 
72,584

 
71,833

 
76,103

 
71,529

Diluted
 
80,800

 
77,402

 
74,319

 
72,584

 
71,833

 
76,103

 
71,529

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per share of common stock
 
$
0.83

 
$
0.80

 
$
0.80

 
$
0.80

 
$
0.77

 
$
3.23

 
$
3.05



 
8
 
 
Consolidated Balance Sheets
q416headerlogo.jpg
December 31, 2016
(In thousands)
 
 

 
 
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
Assets
 
 
 
 

 
 

 
 

 
 

Investments in real estate
 
$
9,077,972

 
$
7,939,179

 
$
7,774,608

 
$
7,741,466

 
$
7,629,922

Investments in unconsolidated real estate joint ventures
 
50,221

(1) 
133,580

 
132,433

 
127,165

 
127,212

Cash and cash equivalents
 
125,032

 
157,928

 
256,000

 
146,197

 
125,098

Restricted cash
 
16,334

 
16,406

 
13,131

 
14,885

 
28,872

Tenant receivables
 
9,744

 
9,635

 
9,196

 
9,979

 
10,485

Deferred rent
 
335,974

 
318,286

 
303,379

 
293,144

 
280,570

Deferred leasing costs
 
195,937

 
191,765

 
191,619

 
192,418

 
192,081

Investments
 
342,477

 
320,989

 
360,050

 
316,163

 
353,465

Other assets
 
201,197

 
206,133

 
104,414

 
130,115

 
133,312

Total assets
 
$
10,354,888

 
$
9,293,901

 
$
9,144,830

 
$
8,971,532

 
$
8,881,017

 
 
 
 
 
 
 
 
 
 
 
Liabilities, Noncontrolling Interests, and Equity
 
 
 
 
 
 
 
 
 
 
Secured notes payable
 
$
1,011,292

 
$
789,450

 
$
722,794

 
$
816,578

 
$
809,818

Unsecured senior notes payable
 
2,378,262

 
2,377,482

 
2,376,713

 
2,031,284

 
2,030,631

Unsecured senior line of credit
 
28,000

 
416,000

 
72,000

 
299,000

 
151,000

Unsecured senior bank term loans
 
746,471

 
746,162

 
945,030

 
944,637

 
944,243

Accounts payable, accrued expenses, and tenant security deposits
 
731,671

(1) 
605,181

 
593,628

 
628,467

 
589,356

Dividends payable
 
76,914

 
66,705

 
67,188

 
64,275

 
62,005

Total liabilities
 
4,972,610

 
5,000,980

 
4,777,353

 
4,784,241

 
4,587,053

 
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
 
11,307

 
9,012

 
9,218

 
14,218

 
14,218

 
 
 
 
 
 
 
 
 
 
 
Alexandria Real Estate Equities, Inc.’s stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
7.00% Series D cumulative convertible preferred stock
 
86,914

 
161,792

 
188,864

 
213,864

 
237,163

6.45% Series E cumulative redeemable preferred stock
 
130,000

 
130,000

 
130,000

 
130,000

 
130,000

Common stock
 
877

 
768

 
766

 
729

 
725

Additional paid-in capital
 
4,672,650

 
3,649,263

 
3,693,807

 
3,529,660

 
3,558,008

Accumulated other comprehensive income (loss)
 
5,355

 
(31,745
)
 
8,272

 
(8,533
)
 
49,191

Alexandria’s stockholders’ equity
 
4,895,796

 
3,910,078

 
4,021,709

 
3,865,720

 
3,975,087

Noncontrolling interests
 
475,175

 
373,831

 
336,550

 
307,353

 
304,659

Total equity
 
5,370,971

 
4,283,909

 
4,358,259

 
4,173,073

 
4,279,746

Total liabilities, noncontrolling interests, and equity
 
$
10,354,888

 
$
9,293,901

 
$
9,144,830

 
$
8,971,532

 
$
8,881,017


(1)
See page 2 of our Earnings Press Release for additional information on our acquisition of the remaining 49% interest in our real estate joint venture with Uber.

 
9
 
 
Funds From Operations and Funds From Operations Per Share
q416headerlogo.jpg
December 31, 2016
(In thousands, except per share amounts)
 
 

The following tables present a reconciliation of net (loss) income attributable to Alexandria’s common stockholders – basic, the most directly comparable financial measure presented in accordance with generally accepted accounting principles (“GAAP”), including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations attributable to Alexandria’s common stockholders – diluted, and funds from operations attributable to Alexandria’s common stockholders – diluted, as adjusted, for the periods below:
 
 
Three Months Ended
 
Year Ended
 
 
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
 
12/31/16
 
12/31/15
Net (loss) income attributable to Alexandria’s common stockholders
 
$
(25,127
)
 
$
5,452

 
$
(127,648
)
 
$
(3,818
)
 
$
35,131

 
$
(151,141
)
 
$
116,867

Depreciation and amortization
 
95,222

 
77,133

 
70,169

 
70,866

 
72,245

 
313,390

 
261,289

Noncontrolling share of depreciation and amortization from consolidated real estate JVs
 
(2,598
)
 
(2,224
)
 
(2,226
)
 
(2,301
)
 
(372
)
 
(9,349
)
 
(372
)
Our share of depreciation and amortization from unconsolidated real estate JVs
 
655

 
658

 
651

 
743

 
655

 
2,707

 
1,734

Gain on sales of real estate – rental properties
 
(3,715
)
 
—

 
—

 
—

 
(12,426
)
 
(3,715
)
 
(12,426
)
Gain on sales of real estate – land parcels
 
—

 
(90
)
 
—

 
—

 
—

 
(90
)
 
—

Impairment of real estate – rental properties
 
3,506

 
6,293

 
88,395

 
—

 
8,740

 
98,194

(1) 
23,250

Allocation to unvested restricted stock awards
 
—

 
(438
)
 
—

 
(80
)
 
(522
)
 
—

 
(1,758
)
Funds from operations attributable to Alexandria’s common stockholders –
basic and diluted (2)
 
67,943

 
86,784

 
29,341

 
65,410

 
103,451

 
249,996

 
388,584

Non-real estate investment income
 
—

 
—

 
(4,361
)
 
—

 
(7,731
)
 
(4,361
)
 
(13,109
)
Impairments of land parcels and non-real estate investments
 
12,511

 
4,886

 
67,162

 
28,980

 
—

 
113,539

(1) 
—

Loss on early extinguishment of debt
 
—

 
3,230

 
—

 
—

 
—

 
3,230

 
189

Preferred stock redemption charge
 
35,653

 
13,095

 
9,473

 
3,046

 
—

 
61,267

 
—

Allocation to unvested restricted stock awards
 
(605
)
 
(359
)
 
(530
)
 
(358
)
 
85

 
(2,356
)
 
110

Funds from operations attributable to Alexandria’s common stockholders –
diluted, as adjusted
 
$
115,502

 
$
107,636

 
$
101,085

 
$
97,078

 
$
95,805

 
$
421,315

 
$
375,774


(1)
Includes impairment of real estate aggregating $209.3 million and impairment of non-real estate investment aggregating approximately $3.1 million, net of amounts attributable to noncontrolling interests.
(2)
Calculated in accordance with standards established by the Advisory Board of Governors of the National Association of Real Estate Investment Trusts (the “NAREIT Board of Governors”) in its April 2002 White Paper and related implementation guidance.

 
10
 
 
Funds From Operations and Funds From Operations Per Share (continued)
q416headerlogo.jpg
December 31, 2016
(In thousands)
 
 


The following table presents a reconciliation of net (loss) income per share attributable to Alexandria’s common stockholders – basic, the most directly comparable financial measure presented in accordance with GAAP, including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations per share attributable to Alexandria’s common stockholders – diluted, and funds from operations per share attributable to Alexandria’s common stockholders – diluted, as adjusted, for the periods below. Amounts allocable to unvested restricted stock awards are not material and are not presented separately within the table below. Per share amounts may not add due to rounding.
 
 
Three Months Ended
 
Year Ended
 
 
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
 
12/31/16
 
12/31/15
Net (loss) income per share attributable to Alexandria’s common stockholders
 
$
(0.31
)
 
$
0.07

 
$
(1.72
)
 
$
(0.05
)
 
$
0.49

 
$
(1.99
)
 
$
1.63

Depreciation and amortization 
 
1.15

 
0.97

 
0.92

 
0.95

 
1.00

 
4.02

 
3.64

Gain on sales of real estate – rental properties
 
(0.05
)
 
—

 
—

 
—

 
(0.17
)
 
(0.05
)
 
(0.17
)
Impairment of real estate – rental properties
 
0.05

 
0.08

 
1.19

 
—

 
0.12

 
1.29

 
0.33

Funds from operations per share attributable to Alexandria’s common stockholders – basic and diluted (1)
 
0.84

 
1.12

 
0.39

 
0.90

 
1.44

 
3.27


5.43

Non-real estate investment income
 
—

 
—

 
(0.06
)
 
—

 
(0.11
)
 
(0.06
)
 
(0.18
)
Impairments of land parcels and non-real estate investments
 
0.15

 
0.06

 
0.90

 
0.40

 
—

 
1.47

 
—

Loss on early extinguishment of debt
 
—

 
0.04

 
—

 
—

 
—

 
0.04

 
—

Preferred stock redemption charge
 
0.43

 
0.17

 
0.13

 
0.04

 
—

 
0.79

 
—

Funds from operations per share attributable to Alexandria’s common stockholders – diluted, as adjusted
 
$
1.42

 
$
1.39

 
$
1.36

 
$
1.34

 
$
1.33

 
$
5.51

 
$
5.25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding for calculating funds from operations per share and funds from operations, as adjusted, per share – diluted
 
81,280

(2) 
77,402

(2) 
74,319

 
72,584

 
71,833

 
76,412

(2) 
71,529


(1)
Calculated in accordance with standards established by the NAREIT Board of Governors in its April 2002 White Paper and related implementation guidance.
(2)
Includes weighted average shares related to our forward equity sales agreements. See page 2 of our Earnings Press Release for additional information on our forward equity sales agreements and page 54 of our Supplemental Information for the definition of weighted-average shares of common stock outstanding – diluted.

 
11








SUPPLEMENTAL
INFORMATION








 
 
 
q416headerlogo.jpg
Company Profile
December 31, 2016
 
 

Alexandria Real Estate Equities, Inc. (NYSE:ARE) 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 $14.2 billion and an asset base in North America of 25.2 million square feet as of December 31, 2016. The asset base in North America includes 19.9 million RSF of operating properties and development and redevelopment of new Class A properties (under construction or pre-construction), and 5.3 million square feet of future ground-up development projects. Alexandria pioneered this niche in 1994 and has since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science and technology campuses that provide its innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. We believe these advantages result in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit www.are.com.

Tenant base

Alexandria is known for our high-quality and diverse tenant base, with 49% of our annual rental revenue generated from investment grade tenants. The impressive quality, diversity, breadth, and depth of our significant relationships with our tenants provide Alexandria with high-quality and stable cash flows. Alexandria’s underwriting team and long-term industry relationships positively distinguish us from all other publicly traded REITs and real estate companies.

Executive/senior management team

Alexandria’s executive and senior management team has unique experience and expertise in creating highly dynamic and collaborative campuses in key urban life science and technology cluster locations that inspire innovation. From the development of high-quality, sustainable real estate, to the ongoing cultivation of collaborative environments with unique amenities and events, the Alexandria team has a first-in-class reputation of excellence in its niche. Our highly experienced management team also includes regional market directors with leading reputations and longstanding relationships within the life science and technology communities in their respective urban innovation clusters. We believe that our expertise, experience, reputation, and key relationships with the real estate, life science, and technology industries provide Alexandria significant competitive advantages in attracting new business opportunities.
 
Alexandria’s executive/senior management team, consisting of 24 individuals, averages more than 25 years of real estate experience, including more than 13 years with Alexandria.


EXECUTIVE MANAGEMENT TEAM
Joel S. Marcus
Chairman,
Chief Executive Officer & Founder
Dean A. Shigenaga
Executive Vice President,
Chief Financial Officer & Treasurer
Thomas J. Andrews
Executive Vice President
Regional Market Director – Greater Boston
Jennifer J. Banks
Executive Vice President
General Counsel & Corporate Secretary
Vincent R. Ciruzzi
Chief Development Officer
Peter M. Moglia
Chief Investment Officer
Stephen A. Richardson
Chief Operating Officer &
Regional Market Director – San Francisco
Daniel J. Ryan
Executive Vice President
Regional Market Director – San Diego & Strategic Operations


 
13
 
 
 
q416headerlogo.jpg
Investor Information
December 31, 2016
 
 

Corporate Headquarters
 
New York Stock Exchange Trading Symbols
 
Information Requests
385 East Colorado Boulevard, Suite 299
 
Common stock: ARE
 
Phone:
(626) 396-4828
Pasadena, California 91101
 
7.00% Series D preferred stock: ARE PRD
 
Email:
 
 
6.45% Series E preferred stock: ARE PRE
 
Web:
www.are.com
 
 
 
 
 
 
Equity research coverage
Alexandria is currently covered by the following research analysts. This list may not be complete and is subject to change as firms initiate or discontinue coverage of our company. Please note that any opinions, estimates, or forecasts regarding our historical or predicted performance made by these analysts are theirs alone and do not represent opinions, estimates, or forecasts of Alexandria or its management. Alexandria does not by its reference or distribution of the information below imply its endorsement of or concurrence with any opinions, estimates, or forecasts of these analysts. Interested persons may obtain copies of analysts’ reports on their own as we do not distribute these reports. Several of these firms may, from time to time, own our stock and/or hold other long or short positions in our stock and may provide compensated services to us.
Bank of America Merrill Lynch
 
Citigroup Global Markets Inc.
 
J.P. Morgan Securities LLC
 
Robert W. Baird & Co. Incorporated
Jamie Feldman / Jeffrey Spector
 
Michael Bilerman / Emmanuel Korchman
 
Anthony Paolone / Gene Nusinzon
 
David Rodgers / Richard Schiller
(646) 855-5808 / (646) 855-1363
 
(212) 816-1383 / (212) 816-1382
 
(212) 622-6682 / (212) 622-1041
 
(216) 737-7341 / (312) 609-5485
 
 
 
 
 
 
 
Barclays Capital Inc.
 
Evercore ISI
 
Mitsubishi UFJ Securities (USA), Inc.
 
UBS Securities LLC
Ross Smotrich / Peter Siciliano
 
Sheila McGrath / Nathan Crossett
 
Karin Ford / Ryan Cybart
 
Nick Yulico / Frank Lee
(212) 526-2306 / (212) 526-3098
 
(212) 497-0882 / (212) 497-0870
 
(212) 405-7349 / (212) 405-6591
 
(212) 713-3402 / (415) 352-5679
 
 
 
 
 
 
 
BTIG, LLC
 
Green Street Advisors, Inc.
 
Mizuho Securities USA Inc.
 
 
Thomas Catherwood / James Sullivan
 
Jed Reagan / Daniel Ismail
 
Richard Anderson / Zachary Silverberg
 
 
(212) 738-6140 / (212) 738-6139
 
(949) 640-8780 / (949) 640-8780
 
(212) 205-8445 / (212) 205-7855
 
 
 
 
 
 
 
 
 
CFRA
 
JMP Securities – JMP Group, Inc.
 
RBC Capital Markets
 
 
Kenneth Leon
 
Peter Martin / Brian Riley
 
Michael Carroll / James Bambrick
 
 
(212) 438-4638
 
(415) 835-8904 / (415) 835-8908
 
(440) 715-2649 / (440) 715-2654
 
 



Rating agencies
 
 
Moody’s Investors Service
 
S&P Global Ratings
Philip Kibel / Reed Valutas
 
Fernanda Hernandez / Anita Ogbara
(212) 553-4402 / (212) 553-4169
 
(212) 438-1347 / (212) 438-5077

 
14
 
 
 
q416headerlogo.jpg
High-Quality, Diversified, and Innovative Tenants
December 31, 2016
 
 



Cash Flows from High-Quality, Diversified, and Innovative Tenants


Investment-Grade Tenants
 
Tenant Mix by Annual Rental Revenue(1)
49
%
 
 
q416clienttenantmix.jpg
(2) 
 
of ARE’s Total
Annual Rental Revenue(1)
 








(1)
Represents annual rental revenue in effect as of December 31, 2016.
(2)
Decline in annual rental revenue from investment-grade tenants primarily due to the delivery of 422,980 RSF to Uber Technologies, Inc. during 4Q16. As of June 2016, the latest valuation date, Uber had an estimated value of approximately $68 billion.
(3)
Tech and other represent 4.9% and 2.9%, respectively, of annual rental revenue.

 
15
 
 
 
q416headerlogo.jpg
Class A Properties in AAA Locations
December 31, 2016
 
 


High-Quality Cash Flows from Class A Properties in AAA Locations(1) 

 
 
Key Locations
 
 
q416realestatemetrics.jpg
Class A Properties in
AAA Locations
 
 
79%
 
of ARE’s
 
 
Annual Rental Revenue (2)

 
 
 
 
 
 
Percentage of ARE’s Annual Rental Revenue (2)










(1)
As of December 31, 2016.
(2)
Represents annual rental revenue in effect as of December 31, 2016.

 
16
 
 
 
q416headerlogo.jpg
Occupancy
December 31, 2016
 
 



Solid Demand for Class A Properties in AAA Locations
Drives Solid Occupancy

 
 
Occupancy of Operating Properties
across Key Locations as of December 31, 2016
 
 
q416occupancy.jpg
Solid Historical Occupancy (1)
 
 
95%
 
Over 10 Years
 
 
 
 
(1)    Average occupancy of operating properties in North America as of December 31 for the last 10 years.

 
17
 
 
Financial and Asset Base Highlights
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands, except per share amounts)
 
 

 
 
Three Months Ended (unless stated otherwise)
 
 
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
Selected financial data from consolidated financial statements and related information
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA – quarter annualized
 
$
662,836

 
$
614,668

 
$
601,048

 
$
564,804

 
$
586,064

Adjusted EBITDA – trailing 12 months
 
$
610,839

 
$
591,646

 
$
579,880

 
$
562,454

 
$
547,739

Adjusted EBITDA margins
 
67%

 
67%

 
66%

 
65%

 
65%

Operating margins
 
71%

 
69%

 
70%

 
70%

 
69%

 
 
 
 
 
 
 
 
 
 
 
Net debt (excluding unamortized deferred financing costs) at end of period
 
$
4,052,576

 
$
4,186,180

 
$
3,881,708

 
$
3,958,891

 
$
3,811,825

Net debt to Adjusted EBITDA – quarter annualized
 
6.1x

 
6.8x

 
6.5x

 
7.0x

 
6.5x

Net debt to Adjusted EBITDA – trailing 12 months
 
6.6x

 
7.1x

 
6.7x

 
7.0x

 
7.0x

Net debt and preferred stock to Adjusted EBITDA – quarter annualized
 
6.4x

 
7.3x

 
7.0x

 
7.6x

 
7.1x

Net debt and preferred stock to Adjusted EBITDA – trailing 12 months
 
7.0x

 
7.6x

 
7.2x

 
7.6x

 
7.6x

 
 
 
 
 
 
 
 
 
 
 
Fixed-charge coverage ratio – quarter annualized
 
3.8x

 
3.6x

 
3.6x

 
3.5x

 
3.6x

Fixed-charge coverage ratio – trailing 12 months
 
3.6x

 
3.6x

 
3.6x

 
3.5x

 
3.5x

Unencumbered net operating income as a percentage of total net operating income
 
82%

 
87%

 
87%

 
82%

 
81%

 
 
 
 
 
 
 
 
 
 
 
Closing stock price at end of period
 
$
111.13

 
$
108.77

 
$
103.52

 
$
90.89

 
$
90.36

Common shares outstanding (in thousands) at end of period
 
87,666

 
76,824

 
76,615

 
72,874

 
72,549

Total equity capitalization at end of period
 
$
9,991,832

 
$
8,717,246

 
$
8,326,096

 
$
7,008,376

 
$
6,949,924

Total market capitalization at end of period
 
$
14,155,857

 
$
13,046,340

 
$
12,442,633

 
$
11,099,875

 
$
10,885,616

 
 
 
 
 
 
 
 
 
 
 
Dividend per share – quarter/annualized
 
$0.83/$3.32

 
$0.80/$3.20

 
$0.80/$3.20

 
$0.80/$3.20

 
$0.77/$3.08

Dividend payout ratio for the quarter
 
63%

 
57%

 
61%

 
60%

 
58%

Dividend yield – annualized
 
3.0%

 
2.9%

 
3.1%

 
3.5%

 
3.4%

 
 
 
 
 
 
 
 
 
 
 
General and administrative expense as a percentage of total assets – trailing 12 months
 
0.6%

 
0.7%

 
0.7%

 
0.7%

 
0.7%

General and administrative expense as a percentage of total revenues – trailing 12 months
 
6.9%

 
6.9%

 
6.9%

 
7.0%

 
7.1%

 
 
 
 
 
 
 
 
 
 
 
Capitalized interest
 
$
11,659

 
$
14,903

 
$
13,788

 
$
12,099

 
$
8,696

Weighted-average interest rate for capitalization of interest during period
 
3.72%

 
3.78%

 
3.70%

 
3.60%

 
3.37%

 
 
 
 
 
 
 
 
 
 
 



 
18
 
 
Financial and Asset Base Highlights (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands, except annual rental revenue per occupied RSF amounts)
 
 

 
 
Three Months Ended (unless stated otherwise)
 
 
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
Amounts included in funds from operations and non-revenue-enhancing capital expenditures
 
 
 
 
 
 
 
 
 
 
Straight-line rent revenue
 
$
20,993

(1) 
$
16,111

 
$
2,430

 
$
12,138

 
$
13,062

Amortization of acquired below-market leases
 
$
2,818

 
$
965

 
$
966

 
$
974

 
$
997

Straight-line rent on ground leases
 
$
557

 
$
(1,331
)
 
$
777

 
$
592

 
$
862

Stock compensation expense
 
$
6,426

 
$
7,451

 
$
6,117

 
$
5,439

 
$
4,590

Amortization of loan fees
 
$
3,080

 
$
3,080

 
$
2,953

 
$
2,759

 
$
2,654

Amortization of debt premiums
 
$
383

 
$
5

 
$
26

 
$
86

 
$
90

Non-revenue-enhancing capital expenditures:
 
 
 
 
 
 
 
 
 
 
Building improvements
 
$
2,135

 
$
1,920

 
$
2,833

 
$
2,318

 
$
2,025

Tenant improvements and leasing commissions
 
$
11,614

 
$
10,289

 
$
9,041

 
$
2,475

 
$
4,436

 
 
 
 
 
 
 
 
 
 
 
Operating statistics and related information (at end of period)
 
 
 
 
 
 
 
 
 
 
Number of properties – North America
 
199

 
189

 
189

 
190

 
191

RSF (including development and redevelopment projects under construction) – North America
 
19,869,729

 
18,820,579

 
18,819,315

 
18,903,424

 
18,874,070

Total square feet – North America
 
25,162,360

 
24,499,286

 
24,400,303

 
24,509,859

 
24,419,610

Annual rental revenue per occupied RSF – North America
 
$
45.15

 
$
43.39

 
$
42.06

 
$
41.67

 
$
41.17

Occupancy of operating properties – North America
 
96.6%

 
97.1%

 
97.0%

 
97.3%

 
97.2%

Occupancy of operating and redevelopment properties – North America
 
95.7%

 
94.4%

 
93.9%

 
93.8%

 
93.7%

 
 
 
 
 
 
 
 
 
 
 
Total leasing activity – RSF
 
1,501,376

 
683,307

 
816,512

 
388,872

 
1,012,238

Lease renewals and re-leasing of space – change in average new rental rates over expiring rates:
 
 
 
 
 
 
 
 
 
 
Rental rate increases
 
25.8%


28.2%

 
27.1%

 
33.6%

 
19.8%

Rental rate increases (cash basis)
 
9.5%

 
16.2%

 
9.3%

 
16.9%

 
7.3%

RSF (2)
 
671,222

 
592,776

 
647,268

 
218,342

 
480,963

 
 
 
 
 
 
 
 
 
 
 
Same property – percentage change over comparable quarter from prior year:
 
 
 
 
 
 
 
 
 
 
Net operating income increase
 
3.2%

 
5.3%

 
4.9%

 
5.3%

 
1.3%

Net operating income increase (cash basis)
 
4.9%

 
6.1%

 
6.4%

 
6.2%

 
2.0%

 
 
 
 
 
 
 
 
 
 
 
(1)    Approximately 84% of straight-line rent revenue relates to initial free rent concessions granted on value-creation projects recently placed into service. The increase from 3Q16 relates primarily to free rent granted on our 50 and 60 Binney Street projects (development of new Class A buildings) placed into service during 3Q16. As of 2Q17, annual cash rents at 75/125 Binney Street (ground-up development of new Class A building) are expected to increase by approximately $20.0 million as a result of the end of previously granted free rent.
(2)    Included in total leasing activity above.

 
19
 
 
 
q416headerlogo.jpg
Key Operating Metrics
December 31, 2016
 
 

Favorable Lease Structure (1)
 
Same Property Net Operating Income Increase
 
 
 
q416sameprop.jpg
 
Percentage of triple net leases
97%
 
 
 
Stable cash flows
 
 
 
Percentage of leases
containing annual rent escalations
96%
 
 
 
Increasing cash flows
 
 
 
Percentage of leases
providing for the recapture of capital expenditures
95%
 
 
 
Lower capex burden
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Margins (2)
 
Rental Rate Increases:
Renewed/Re-Leased Space
 
 
 
 
 
 
 
 
 
q416rentalrate4a.jpg
q416rentalrate4b.jpg
 
Adjusted EBITDA
 
 
 
Operating
 
 
67%
 
 
 
71%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Percentages calculated based on RSF.
(2)
Represents the three months ended December 31, 2016.

 
20
 
 
 
q416headerlogo.jpg
Same Property Performance
December 31, 2016
 
 

Same Property Financial Data
 
4Q16
 
2016
 
Same Property Statistical Data
 
4Q16
 
2016
Percentage change over comparable period from prior year:
 
 
 
 
 
Number of same properties
 
166
 
159
Net operating income increase
 
3.2%
 
4.7%
 
Rentable square feet
 
14,374,364
 
13,521,141
Net operating income increase (cash basis)
 
4.9%
 
6.0%
 
Occupancy – current-period average
 
97.2%
 
97.1%
Operating margin
 
70%
 
70%
 
Occupancy – same-period prior-year average
 
96.4%
 
96.3%


The tables below provide two alternative calculations of same property performance in comparison to our historical same property performance. Our reported same property performance is based upon a pool of operating assets and development and redevelopment projects recently placed into service to the extent that those assets were operating for the entirety of the comparable same property periods presented. Development and redevelopment projects recently placed into service are included in same property data for each of the year-over-year comparison periods only if the property was operating during both entire same property periods. For example, projects completed during 2014 are included in 2016 versus 2015 same property performance (as a percentage change over 2015). The two alternative calculations presented below consist of (i) same property performance for the operating portfolio excluding assets that were recently developed or redeveloped, and (ii) same property performance for the operating portfolio including those redevelopment projects that were either under construction or recently placed into service. Same property performance including redevelopment properties generally would have been higher than our method of reporting same property performance. Same property performance including redevelopment properties will, from time to time, have significant growth in net operating income as a result of the completion of the conversion of non-laboratory space (with lower net operating income) to office/laboratory space (with higher net operating income) through redevelopment. We believe our method of reporting same property performance is a more useful presentation because it excludes the potential significant increases in performance as a result of completion of significant redevelopment projects.

 
 
Net Operating Income Included in All Comparative Periods
 
 
Operating
Properties
 
Recently Placed into Service
 
Properties under Construction
Same Property
 
 
Developments
 
Redevelopments
 
Development
 
Redevelopment
As reported above
 
Yes
 
Yes
 
Yes 
 
No
 
No
 
 
 
 
 
 
 
 
 
 
 
Operating portfolio
 
Yes
 
No
 
No
 
No
 
No
 
 
 
 
 
 
 
 
 
 
 
Including redevelopments
 
Yes
 
No
 
Yes
 
No
 
Yes

Percentage Change in Same Property Net Operating Income over Preceding Period
Same Property
 
2013
 
2014
 
2015
 
2016
As reported above
 
1.8%
 
4.5%
 
1.3%
 
4.7%
 
 
 
 
 
 
 
 
 
Operating portfolio
 
1.7%
 
4.8%
 
1.1%
 
4.7%
 
 
 
 
 
 
 
 
 
Including redevelopments
 
8.4%
 
6.9%
 
3.1%
 
4.7%
Percentage Change in Same Property Net Operating Income over Preceding Period (Cash Basis)
Same Property
 
2013
 
2014
 
2015
 
2016
As reported above
 
5.4%
 
5.5%
 
4.7%
 
6.0%
 
 
 
 
 
 
 
 
 
Operating portfolio
 
4.4%
 
3.3%
 
4.2%
 
5.6%
 
 
 
 
 
 
 
 
 
Including redevelopments
 
9.6%
 
8.1%
 
5.8%
 
7.7%

 
21
 
 
Same Property Performance (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 


 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
2016
 
2015
 
$ Change
 
% Change
 
2016
 
2015
 
$ Change
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
$
150,774

 
$
145,666

 
$
5,108

 
3.5
%
 
$
541,164

 
$
521,954

 
$
19,210

 
3.7
%
 
Non-same properties
 
36,541

 
12,434

 
24,107

 
193.9

 
132,656

 
86,870

 
45,786

 
52.7

 
Total rental
 
187,315

 
158,100

 
29,215

 
18.5

 
673,820

 
608,824

 
64,996

 
10.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
50,649

 
50,449

 
200

 
0.4

 
189,270

 
183,885

 
5,385

 
2.9

 
Non-same properties
 
7,621

 
4,507

 
3,114

 
69.1

 
34,385

 
25,178

 
9,207

 
36.6

 
Total tenant recoveries
 
58,270

 
54,956

 
3,314

 
6.0

 
223,655

 
209,063

 
14,592

 
7.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
39

 
160

 
(121
)
 
(75.6
)
 
171

 
475

 
(304
)
 
(64.0
)
 
Non-same properties
 
3,538

 
10,739

 
(7,201
)
 
(67.1
)
 
24,060

 
25,112

 
(1,052
)
 
(4.2
)
 
Total other income
 
3,577

 
10,899

 
(7,322
)
 
(67.2
)
 
24,231

 
25,587

 
(1,356
)
 
(5.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
201,462

 
196,275

 
5,187

 
2.6

 
730,605

 
706,314

 
24,291

 
3.4

 
Non-same properties
 
47,700

 
27,680

 
20,020

 
72.3

 
191,101

 
137,160

 
53,941

 
39.3

 
Total revenues
 
249,162

 
223,955

 
25,207

 
11.3

 
921,706

 
843,474

 
78,232

 
9.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
60,682

 
59,821

 
861

 
1.4

 
219,235

 
217,888

 
1,347

 
0.6

 
Non-same properties
 
12,562

 
9,092

 
3,470

 
38.2

 
59,173

 
43,344

 
15,829

 
36.5

 
Total rental operations
 
73,244

 
68,913

 
4,331

 
6.3

 
278,408

 
261,232

 
17,176

 
6.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
140,780

 
136,454

 
4,326

 
3.2

 
511,370

 
488,426

 
22,944

 
4.7

 
Non-same properties
 
35,138

 
18,588

 
16,550

 
89.0

 
131,928

 
93,816

 
38,112

 
40.6

 
Net operating income
 
$
175,918

 
$
155,042

 
$
20,876

 
13.5
%
 
$
643,298

 
$
582,242

 
$
61,056

 
10.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net operating income – same properties
 
$
140,780

 
$
136,454

 
$
4,326

 
3.2
%
 
$
511,370

 
$
488,426

 
$
22,944

 
4.7
%
 
Straight-line rent revenue and amortization of acquired
below-market leases
 
(9,432
)
 
(11,195
)
 
1,763

 
(15.7
)
 
(14,085
)
 
(19,314
)
 
5,229

 
(27.1
)
 
Net operating income – same properties (cash basis)
 
$
131,348

 
$
125,259

 
$
6,089

 
4.9
%
 
$
497,285

 
$
469,112

 
$
28,173

 
6.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
22
 
 
 
q416headerlogo.jpg
Leasing Activity
December 31, 2016
 
 

 
 
Three Months Ended
 
Year Ended
 
Year Ended
 
 
December 31, 2016
 
December 31, 2016
 
December 31, 2015
(Dollars are per RSF)
 
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
 
25.8%

 
9.5%

 
27.6%

 
12.0%

 
19.6%

 
9.9%

New rates
 
$
49.58

 
$
45.95

 
$
48.60

 
$
45.83

 
$
35.70

 
$
35.97

Expiring rates
 
$
39.40

 
$
41.95

 
$
38.09

 
$
40.92

 
$
29.84

 
$
32.73

Rentable square footage
 
671,222

 
 
 
2,129,608

 
 
 
2,209,893

 
 
Number of leases
 
41

 
 
 
126

 
 
 
146

 
 
Tenant improvements/leasing commissions
 
$
17.25

 
 
 
$
15.69

 
 
 
$
10.02

 
 
Average lease term
 
6.9 years

 
 
 
5.5 years

 
 
 
4.7 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed/redeveloped/previously vacant space leased (2)
 
 
 
 
 
 
 
 
 
 
 
 
New rates
 
$
52.92

 
$
36.55

 
$
50.24

 
$
38.72

 
$
55.24

 
$
50.65

Rentable square footage
 
830,154

 
 
 
1,260,459

 
 
 
2,762,149

 
 
Number of leases
 
13

 
 
 
53

 
 
 
72

 
 
Tenant improvements/leasing commissions
 
$
7.81

 
 
 
$
12.42

 
 
 
$
19.63

 
 
Average lease term
 
45.3 years

 
 
 
32.6 years

 
 
 
11.9 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasing activity summary (totals):
 
 
 
 
 
 
 
 
 
 
 
 
New rates
 
$
51.43

 
$
40.75

 
$
49.21

 
$
43.19

 
$
46.55

 
$
44.13

Rentable square footage
 
1,501,376

 
 
 
3,390,067

(3) 
 
 
4,972,042

 
 
Number of leases
 
54

 
 
 
179

 
 
 
218

 
 
Tenant improvements/leasing commissions
 
$
12.03

 
 
 
$
14.48

 
 
 
$
15.36

 
 
Average lease term
 
28.1 years

 
 
 
15.6 years

 
 
 
8.7 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease expirations: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Expiring rates
 
$
38.94

 
$
41.49

 
$
36.70

 
$
39.32

 
$
28.32

 
$
30.80

Rentable square footage
 
748,174

 
 
 
2,484,169

 
 
 
2,801,883

 
 
Number of leases
 
58

 
 
 
166

 
 
 
197

 
 

Leasing activity includes 100% of results for each property managed by us.

(1)
Excludes 20 month-to-month leases for 31,207 RSF and 16 month-to-month leases for 30,810 RSF as of December 31, 2016 and 2015, respectively.
(2)
2016 information includes the 75-year ground lease with Uber at 1455 and 1515 Third Street. The average lease term, excluding this ground lease, was 13.4 years and 10.7 years for 4Q16 and 2016, respectively.
(3)
During the year ended December 31, 2016, we granted tenant concessions/free rent averaging 1.8 months with respect to the 3,390,067 RSF leased.

 
23
 
 
 
q416headerlogo.jpg
Contractual Lease Expirations
December 31, 2016
 
 

Year
 
Number of Leases
 
RSF
 
Percentage of
Occupied RSF
 
Annual Rental Revenue
(per RSF)
 
Percentage of Total
Annual Rental Revenue
 
2017
 
 
67

(1) 
 
 
985,627

(1) 
 
 
5.7
%
(1) 
 
 
$
30.96

(1) 
 
 
3.9
%
(1) 
 
2018
 
 
124

 
 
 
1,947,907

 
 
 
11.2
%
 
 
 
$
43.08

 
 
 
10.8
%
 
 
2019
 
 
81

 
 
 
1,546,068

 
 
 
8.9
%
 
 
 
$
41.34

 
 
 
8.2
%
 
 
2020
 
 
79

 
 
 
1,823,082

 
 
 
10.5
%
 
 
 
$
40.03

 
 
 
9.4
%
 
 
2021
 
 
75

 
 
 
1,617,138

 
 
 
9.3
%
 
 
 
$
42.25

 
 
 
8.8
%
 
 
2022
 
 
54

 
 
 
1,241,547

 
 
 
7.2
%
 
 
 
$
46.08

 
 
 
7.4
%
 
 
2023
 
 
29

 
 
 
1,412,675

 
 
 
8.1
%
 
 
 
$
42.85

 
 
 
7.8
%
 
 
2024
 
 
20

 
 
 
1,129,545

 
 
 
6.5
%
 
 
 
$
45.90

 
 
 
6.7
%
 
 
2025
 
 
14

 
 
 
431,476

 
 
 
2.5
%
 
 
 
$
46.33

 
 
 
2.6
%
 
 
2026
 
 
18

 
 
 
717,121

 
 
 
4.1
%
 
 
 
$
43.92

 
 
 
4.1
%
 
 
Thereafter
 
 
39

 
 
 
4,488,778

 
 
 
26.0
%
 
 
 
$
52.19

 
 
 
30.3
%
 
 

 
 
2017 Contractual Lease Expirations
 
Annual Rental Revenue
(per RSF)
 
2018 Contractual Lease Expirations

Annual Rental Revenue
(per RSF)
 
 
 
Leased
 
Negotiating/
Anticipating
 
Targeted for
Redevelopment
 
Remaining
Expiring Leases
 
Total (1)
 
 
Leased

Negotiating/
Anticipating

Targeted for
Redevelopment

Remaining
Expiring Leases

Total

 
Market
 
 
 
 
 
 
 





 
Greater Boston
 
78,093

(2) 
60,124

 
—

 
100,712

(3) 
238,929

 
$
39.61

 
446,302

(2) 
3,426


—


494,702

(3) 
944,430


$
56.22

 
San Francisco
 
44,703

 
3,418

 
—

 
6,856

 
54,977

 
34.46

 
5,507


2,508


—


296,681


304,696


42.25

 
New York City
 
1,739

 
—

 
—

 
15,374

 
17,113

 
N/A

 
—


—


—


3,091


3,091


N/A

 
San Diego
 
39,622

 
140,580

 
—

 
160,500

(4) 
340,702

 
27.80

 
—


16,091


—

 
318,380

 
334,471


29.99

 
Seattle
 
22,471

 
—

 
—

 
17,900

 
40,371

 
44.66

 
—


—


—


23,034


23,034


49.04

 
Maryland
 
—

 
—

 
—

 
94,665

 
94,665

 
18.35

 
—


—


—


184,600


184,600


15.39

 
Research Triangle Park
 
38,824

 
58,486

 
—

 
74,195

 
171,505

 
15.60

 
—


—


—


62,292


62,292


25.98

 
Canada
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
80,689

 
80,689

 
20.75

 
Non-cluster markets
 
—

 
—

 
—

 
27,365

 
27,365

 
22.19

 
—


—


—


10,604


10,604


26.58

 
Total
 
225,452

 
262,608

 
—

 
497,567

 
985,627

 
$
30.96

 
451,809


22,025


—


1,474,073


1,947,907


$
43.08

 
Percentage of expiring leases
 
23
%
 
27
%
 
—
%
 
50
%
 
100
%
 
 
 
23
%
 
1
%
 
—
%
 
76
%

100
%


 
 

Lease expirations include 100% of RSF for each property managed by us in North America.


(1)
Excludes 20 month-to-month leases for 31,207 RSF.
(2)
Includes 47,185 RSF at 200 Technology Square and 255,441 RSF at 100 Technology Square expiring in 2017 and 2018, respectively. In 1Q17, Novartis AG renewed these spaces for a term of 10 years.
(3)
Includes 84,038 RSF and 318,763 RSF located in our Cambridge submarket for remaining expiring leases in 2017 and 2018, respectively.
(4)
Includes 94,609 RSF related to Eli Lilly and Company’s lease expiration in January 2017 at 10300 Campus Point Drive located in our University Town Center submarket. Eli Lilly and Company relocated and expanded into 305,006 RSF at 10290 Campus Point Drive in December 2016.

 
24
 
 
Top 20 Tenants
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 

Top 20 Tenants: 73% of Annual Rental Revenue from Investment-Grade Tenants
 
 
 
 
Remaining Lease Term in Years (1)
 
Aggregate
RSF
 
 
 
Percentage of Aggregate Annual Rental Revenue
 
 
 
 
 
 
 
 
Annual Rental Revenue
 
 
Investment-Grade Ratings
 
 
Tenant
 
 
 
 
 
Moody’s
 
S&P
1
 
Eli Lilly and Company
 
 
11.7

 
 
595,465

 
$
32,313

 
4.1
%
 
A2
 
AA-
2
 
Illumina, Inc.
 
 
13.5

 
 
891,495

 
31,301

 
4.0

 
—
 
BBB
3
 
ARIAD Pharmaceuticals, Inc. (2) / IBM Watson Health (3)
 
 
13.3

 
 
386,111

 
30,051

 
3.8

 
—
 
—
4
 
Sanofi
 
 
11.0

 
 
446,975

 
25,162

 
3.2

 
A1
 
AA
5
 
Novartis AG
 
 
9.7

(4) 
 
386,217

 
24,122

 
3.1

 
Aa3
 
AA-
6
 
bluebird bio, Inc.
 
 
9.1

 
 
338,911

 
23,640

 
3.0

 
—
 
—
7
 
Uber Technologies, Inc.
 
 
75.9

 
 
422,980

 
22,076

 
2.8

 
—
 
—
8
 
New York University
 
 
13.6

 
 
209,224

 
20,651

 
2.6

 
Aa3
 
AA-
9
 
Dana-Farber Cancer Institute, Inc.
 
 
13.9

 
 
254,130

 
19,512

 
2.5

 
A1
 
—
10
 
Amgen Inc.
 
 
7.3

 
 
407,369

 
16,838

 
2.1

 
Baa1
 
A
11
 
Roche
 
 
3.7

 
 
343,861

 
16,517

 
2.1

 
A1
 
AA
12
 
Massachusetts Institute of Technology
 
 
7.9

 
 
256,126

 
16,431

 
2.1

 
Aaa
 
AAA
13
 
United States Government
 
 
8.5

 
 
263,147

 
14,805

 
1.9

 
Aaa
 
AA+
14
 
Celgene Corporation
 
 
3.2

 
 
344,320

 
14,653

 
1.9

 
 Baa2
 
 BBB+
15
 
FibroGen, Inc.
 
 
6.9

 
 
234,249

 
14,198

 
1.8

 
—
 
—
16
 
Biogen Inc.
 
 
11.8

 
 
305,212

 
13,278

 
1.7

 
Baa1
 
A-
17
 
Merrimack Pharmaceuticals, Inc.
 
 
2.5

 
 
167,167

 
11,246

 
1.4

 
—
 
—
18
 
Bristol-Myers Squibb Company
 
 
2.2

 
 
251,316

 
10,743

 
1.4

 
A2
 
A+
19
 
The Regents of the University of California
 
 
6.7

 
 
233,527

 
10,608

 
1.4

 
Aa2
 
AA
20
 
GlaxoSmithKline plc
 
 
2.5

 
 
249,278

 
10,418

 
1.3

 
A2
 
A+
 
 
Total/weighted average
 
 
13.4

(5) 
 
6,987,080

 
$
378,563

 
48.2
%
 
 
 
 

Annual rental revenue and RSF include 100% of each property managed by us in North America.

(1)
Based on percentage of aggregate annual rental revenue in effect as of December 31, 2016.
(2)
In January 2017, Takeda Pharmaceutical Company Limited entered into a definitive agreement to acquire ARIAD Pharmaceuticals, Inc. The transaction is expected to be completed in February 2017. Takeda holds investment-grade ratings of A1 (Moody’s) and A+ (S&P). If the acquisition was completed as of December 31, 2016, 53% of our annual rental revenue would have been from investment-grade tenants and 81% of our annual rental revenue from Top 20 tenants would have been from investment-grade tenants.
(3)
IBM Watson Health, a digital health venture of IBM, currently subleases 163,186 RSF at 75 Binney Street with an initial lease term of 10 years. IBM holds investment-grade ratings of Aa3 (Moody’s) and AA- (S&P).
(4)
Reflects lease extension for 302,626 RSF at 100 and 200 Technology Square in our Cambridge submarket of Greater Boston executed in January 2017.
(5)
Excluding Uber, the weighted average remaining lease term for our top 20 tenants is 9.6 years.

 
25
 
 
Summary of Properties and Occupancy
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands, except per RSF amounts)
 
 

Summary of properties
 
 
RSF
 
Number of Properties
 
Annual Rental Revenue
 
Market
 
Operating
 
Development
 
Redevelopment
 
Total
 
% of Total
 
 
Total
 
% of Total
 
Per RSF
 
Greater Boston
 
5,849,003

 
431,483

 
—

 
6,280,486

 
32
%
 
51

 
$
323,301

 
41
%
 
$
57.46

 
San Francisco
 
3,209,456

 
743,855

 
—

 
3,953,311

 
20

 
30

 
148,879

 
19

 
46.43

 
New York City
 
727,674

 
—

 
—

 
727,674

 
4

 
2

 
61,366

 
8

 
86.63

 
San Diego
 
3,798,141

 
233,523

 
162,156

 
4,193,820

 
21

 
52

 
129,793

 
17

 
36.26

 
Seattle
 
747,809

 
290,111

 
—

 
1,037,920

 
5

 
11

 
33,999

 
4

 
46.59

 
Maryland
 
2,085,196

 
—

 
—

 
2,085,196

 
11

 
28

 
50,877

 
6

 
25.46

 
Research Triangle Park
 
1,043,726

 
—

 
—

 
1,043,726

 
5

 
15

 
23,689

 
3

 
22.94

 
Canada
 
256,967

 
—

 
—

 
256,967

 
1

 
3

 
6,484

 
1

 
25.45

 
Non-cluster markets
 
268,689

 
—

 
—

 
268,689

 
1

 
6

 
5,992

 
1

 
25.43

 
Properties held for sale
 
21,940

 
—

 
—

 
21,940

 
—

 
1

 
—

 
—

 
—

 
North America
 
18,008,601

 
1,698,972

 
162,156

 
19,869,729

 
100
%
 
199

 
$
784,380

 
100
%
 
$
45.15

 
Future development projects
 
 
 
 
 
 
 
5,292,631

 
 
 
 
 
 
 
 
 
 
 
Total SF – North America
 
 
 
 
 
 
 
25,162,360

 
 
 
 
 
 
 
 
 
 
 

RSF, number of properties, and annual rental revenue include 100% of each property managed by us in North America.

Summary of occupancy
 
 
Operating Properties
 
Operating and Redevelopment Properties
Market
 
12/31/16
 
9/30/16
 
12/31/15
 
12/31/16
 
9/30/16
 
12/31/15
Greater Boston
 
96.2
%
(1) 
98.3
%
 
96.5
%
 
96.2
%
(1) 
98.3
%
 
95.2
%
San Francisco
 
99.9

 
99.8

 
100.0

 
99.9

 
99.8

 
100.0

New York City
 
97.3

 
95.0

 
99.7

 
97.3

 
95.0

 
99.7

San Diego
 
94.3

 
93.0

 
96.4

 
90.4

 
81.1

 
82.3

Seattle
 
97.6

 
98.4

 
99.6

 
97.6

 
98.4

 
99.6

Maryland
 
95.8

(2) 
97.4

 
96.0

 
95.8

(2) 
97.4

 
96.0

Research Triangle Park
 
99.0

 
98.7

 
97.6

 
99.0

 
98.7

 
97.6

Subtotal
 
96.7

 
97.3

 
97.4

 
95.8

 
94.4

 
93.8

Canada
 
99.2

 
99.3

 
99.3

 
99.2

 
99.3

 
99.3

Non-cluster markets
 
87.7

 
88.2

 
80.0

 
87.7

 
88.2

 
80.0

North America
 
96.6
%
 
97.1
%
 
97.2
%
 
95.7
%
 
94.4
%
 
93.7
%

Occupancy includes 100% of each property managed by us in North America.

(1)
The decline from 3Q16 is primarily driven by 100,392 RSF, or 24%, of the property that was delivered vacant during 4Q16 at 360 Longwood Avenue in our Longwood Medical Area submarket. Our ownership percentage in the project is 27.5%.
(2)
The decline from 3Q16 relates to 31,974 RSF vacated at our 1330 Piccard Drive property in the Rockville submarket of Maryland. During 1Q17, we executed a lease for 15,522 RSF to a public biotech company with an expected delivery date of July 2017, and are currently marketing the remaining 16,452 RSF.

 
26
 
 
Property Listing
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Occupancy Percentage 
 
 
 
 
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
 
 
 
 
 
 
 
 
 
 
Operating and Redevelopment
 
Market / Submarket / Address
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
Operating
 
 
Greater Boston
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cambridge/Inner Suburbs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Center® at Kendall Square
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50, 60, 75/125, and 100 Binney Street, 161 and 215 First Street,
150 Second Street, 300 Third Street, and 11 Hurley Street
 
1,646,782

 
431,483

 
—

 
2,078,265

 
9
 
$
104,366

 
99.3
%
 
99.3
%
 
 
 
225 Binney Street (consolidated joint venture – 30% ownership)
 
305,212

 
—

 
—

 
305,212

 
1
 
13,278

 
100.0

 
100.0

 
 
 
Alexandria Technology Square®
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100, 200, 300, 400, 500, 600, and 700 Technology Square
 
1,181,635

 
—

 
—

 
1,181,635

 
7
 
77,933

 
100.0

 
100.0

 
 
 
One Kendall Square
 
644,771

 
—

 
—

 
644,771

 
9
 
42,258

 
97.3

 
97.3

 
 
 
480 and 500 Arsenal Street
 
234,260

 
—

 
—

 
234,260

 
2
 
9,539

 
100.0

 
100.0

 
 
 
640 Memorial Drive
 
225,504

 
—

 
—

 
225,504

 
1
 
13,730

 
100.0

 
100.0

 
 
 
780 and 790 Memorial Drive
 
99,658

 
—

 
—

 
99,658

 
2
 
6,811

 
96.1

 
96.1

 
 
 
167 Sidney Street and 99 Erie Street
 
54,549

 
—

 
—

 
54,549

 
2
 
3,573

 
100.0

 
100.0

 
 
 
79/96 13th Street (Charlestown Navy Yard)
 
25,309

 
—

 
—

 
25,309

 
1
 
620

 
100.0

 
100.0

 
 
 
Cambridge/Inner Suburbs
 
4,417,680

 
431,483

 
—

 
4,849,163

 
34
 
272,108

 
99.3

 
99.3

 
 
Longwood Medical Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
360 Longwood Avenue (unconsolidated joint venture – 27.5% ownership)
 
413,799

 
—

 
—

 
413,799

 
1
 
23,720

 
75.7

 
75.7

 
 
Route 128
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Park at 128
 
343,882

 
—

 
—

 
343,882

 
8
 
9,424

 
93.8

 
93.8

 
 
 
3 and 6/8 Preston Court, 29, 35, and 44 Hartwell Avenue,
35 and 45/47 Wiggins Avenue, and 60 Westview Street
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19 Presidential Way
 
144,892

 
—

 
—

 
144,892

 
1
 
2,591

 
52.6

 
52.6

 
 
 
225 Second Avenue
 
112,500

 
—

 
—

 
112,500

 
1
 
6,109

 
100.0

 
100.0

 
 
 
100 Beaver Street
 
82,330

 
—

 
—

 
82,330

 
1
 
3,104

 
100.0

 
100.0

 
 
 
285 Bear Hill Road
 
26,270

 
—

 
—

 
26,270

 
1
 
1,185

 
100.0

 
100.0

 
 
 
Route 128
 
709,874

 
—

 
—

 
709,874

 
12
 
22,413

 
87.3

 
87.3

 
 
Route 495
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
111 and 130 Forbes Boulevard
 
155,846

 
—

 
—

 
155,846

 
2
 
1,629

 
100.0

 
100.0

 
 
 
20 Walkup Drive
 
91,045

 
—

 
—

 
91,045

 
1
 
666

 
100.0

 
100.0

 
 
 
30 Bearfoot Road
 
60,759

 
—

 
—

 
60,759

 
1
 
2,765

 
100.0

 
100.0

 
 
 
Route 495
 
307,650

 
—

 
—

 
307,650

 
4
 
5,060

 
100.0

 
100.0

 
 
 
Greater Boston
 
5,849,003

 
431,483

 
—

 
6,280,486

 
51
 
$
323,301

 
96.2
%
 
96.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

RSF, annual rental revenue, and occupancy percentage include 100% of each property managed by us in North America.
 

 
27
 
 
Property Listing (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Occupancy Percentage 
 
 
 
 
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
 
 
 
 
 
 
 
 
 
 
Operating and Redevelopment
 
Market / Submarket / Address
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
Operating
 
 
San Francisco
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mission Bay/SoMa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
409 and 499 Illinois Street (consolidated joint venture – 60% ownership)
 
455,069

 
—

 
—

 
455,069

 
2
 
$
28,228

 
100.0
%
 
100.0
%
 
 
 
1455 and 1515 Third Street
 
422,980

 
—

 
—

 
422,980

 
2
 
22,076

 
100.0

 
100.0

 
 
 
510 Townsend Street
 
—

 
300,000

 
—

 
300,000

 
1
 
—

 
—

 
—

 
 
 
455 Mission Bay Boulevard South
 
210,398

 
—

 
—

 
210,398

 
1
 
10,077

 
100.0

 
100.0

 
 
 
1500 Owens Street (consolidated joint venture – 50.1% ownership)
 
158,267

 
—

 
—

 
158,267

 
1
 
7,714

 
100.0

 
100.0

 
 
 
1700 Owens Street
 
157,340

 
—

 
—

 
157,340

 
1
 
10,273

 
100.0

 
100.0

 
 
 
505 Brannan Street (consolidated joint venture – 99.5% ownership)
 
—

 
150,000

 
—

 
150,000

 
1
 
—

 
—

 
—

 
 
 
Mission Bay/SoMa
 
1,404,054

 
450,000

 
—

 
1,854,054

 
9
 
78,368

 
100.0

 
100.0

 
 
South San Francisco
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Center® – Gateway
 
448,175

 
—

 
—

 
448,175

 
6
 
17,882

 
100.0

 
100.0

 
 
 
600, 630, 650, 681, 901, and 951 Gateway Boulevard
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
213, 249, 259, and 269 East Grand Avenue
 
407,369

 
293,855

 
—

 
701,224

 
4
 
16,838

 
100.0

 
100.0

 
 
 
400 and 450 East Jamie Court
 
163,035

 
—

 
—

 
163,035

 
2
 
6,355

 
100.0

 
100.0

 
 
 
500 Forbes Boulevard
 
155,685

 
—

 
—

 
155,685

 
1
 
5,540

 
100.0

 
100.0

 
 
 
7000 Shoreline Court
 
136,395

 
—

 
—

 
136,395

 
1
 
4,582

 
100.0

 
100.0

 
 
 
341 and 343 Oyster Point Boulevard
 
107,960

 
—

 
—

 
107,960

 
2
 
4,479

 
100.0

 
100.0

 
 
 
849/863 Mitten Road/866 Malcolm Road
 
103,857

 
—

 
—

 
103,857

 
1
 
3,123

 
97.1

 
97.1

 
 
 
South San Francisco
 
1,522,476

 
293,855

 
—

 
1,816,331

 
17
 
58,799

 
99.8

 
99.8

 
 
Palo Alto/Stanford Research Park
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
2425 Garcia Avenue/2400/2450 Bayshore Parkway
 
99,208

 
—

 
—

 
99,208

 
1
 
4,257

 
100.0

 
100.0

 
 
 
3165 Porter Drive
 
91,644

 
—

 
—

 
91,644

 
1
 
3,885

 
100.0

 
100.0

 
 
 
3350 West Bayshore Road
 
60,000

 
—

 
—

 
60,000

 
1
 
1,919

 
100.0

 
100.0

 
 
 
2625/2627/2631 Hanover Street
 
32,074

 
—

 
—

 
32,074

 
1
 
1,651

 
100.0

 
100.0

 
 
 
Palo Alto/Stanford Research Park
 
282,926

 
—

 
—

 
282,926

 
4
 
11,712

 
100.0

 
100.0

 
 
 
San Francisco
 
3,209,456

 
743,855

 
—

 
3,953,311

 
30
 
148,879

 
99.9

 
99.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York City
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manhattan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Center® for Life Science
 
727,674

 
—

 
—

 
727,674

 
2
 
61,366

 
97.3

 
97.3

 
 
 
430 and 450 East 29th Street
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York City
 
727,674

 
—

 
—

 
727,674

 
2
 
$
61,366

 
97.3
%
 
97.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RSF, annual rental revenue, and occupancy percentage include 100% of each property managed by us in North America.
 

 
28
 
 
Property Listing (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Occupancy Percentage 
 
 
 
 
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
 
 
 
 
 
 
 
 
 
 
Operating and Redevelopment
 
Market / Submarket / Address
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
Operating
 
 
San Diego
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Torrey Pines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Spectrum
 
102,938

 
233,523

 
—

 
336,461

 
3
 
$
4,241

 
93.7
%
 
93.7
%
 
 
 
3215 Merryfield Row, and 3013 and 3033 Science Park Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Nautilus
 
226,593

 
—

 
—

 
226,593

 
4
 
8,242

 
82.9

 
82.9

 
 
 
3530 and 3550 John Hopkins Court, and 3535 and 3565 General Atomics Court
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Sunrise
 
234,596

 
—

 
—

 
234,596

 
3
 
9,160

 
100.0

 
100.0

 
 
 
10931/10933 and 10975 North Torrey Pines Road,
3010 Science Park Road, and 10996 Torreyana Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Torrey Ridge Science Center
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10578, 10614, and 10628 Science Center Drive
 
294,993

 
—

 
—

 
294,993

 
3
 
12,504

 
87.1

 
87.1

 
 
 
3545 Cray Court
 
116,556

 
—

 
—

 
116,556

 
1
 
4,827

 
100.0

 
100.0

 
 
 
11119 North Torrey Pines Road
 
72,506

 
—

 
—

 
72,506

 
1
 
3,274

 
100.0

 
100.0

 
 
 
Torrey Pines
 
1,048,182

 
233,523

 
—

 
1,281,705

 
15
 
42,248

 
92.1

 
92.1

 
 
University Town Center
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5200 Illumina Way
 
792,687

 
—

 
—

 
792,687

 
6
 
25,371

 
100.0

 
100.0

 
 
 
Campus Pointe by Alexandria (consolidated joint venture – 55% ownership) 
 
754,765

 
—

 
—

 
754,765

 
2
 
30,625

 
100.0

 
100.0

 
 
 
10290 and 10300 Campus Point Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Towne Centre
 
107,253

 
—

 
162,156

 
269,409

 
4
 
1,913

 
100.0

 
39.8

 
 
 
9363, 9373, 9393, and 9625 Towne Centre Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Esplanade
 
241,963

 
—

 
—

 
241,963

 
4
 
9,517

 
95.2

 
95.2

 
 
 
4755, 4757, and 4767 Nexus Center Drive, and 4796 Executive Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9880 Campus Point Drive
 
71,510

 
—

 
—

 
71,510

 
1
 
2,774

 
100.0

 
100.0

 
 
 
University Town Center
 
1,968,178

 
—

 
162,156

 
2,130,334

 
17
 
70,200

 
99.4

 
91.8

 
 
Sorrento Mesa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5810/5820 and 6138/6150 Nancy Ridge Drive
 
138,970

 
—

 
—

 
138,970

 
2
 
3,950

 
100.0

 
100.0

 
 
 
ARE Portola
 
105,812

 
—

 
—

 
105,812

 
3
 
1,415

 
43.1

 
43.1

 
 
 
6175, 6225, and 6275 Nancy Ridge Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10121 and 10151 Barnes Canyon Road 
 
102,392

 
—

 
—

 
102,392

 
2
 
1,987

 
100.0

 
100.0

 
 
 
7330 Carroll Road
 
66,244

 
—

 
—

 
66,244

 
1
 
2,431

 
100.0

 
100.0

 
 
 
5871 Oberlin Drive
 
33,817

 
—

 
—

 
33,817

 
1
 
993

 
100.0

 
100.0

 
 
 
Sorrento Mesa
 
447,235

 
—

 
—

 
447,235

 
9
 
10,776

 
86.5

 
86.5

 
 
Sorrento Valley
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11025, 11035, 11045, 11055, 11065, and 11075 Roselle Street
 
121,655

 
—

 
—

 
121,655

 
6
 
2,900

 
92.0

 
92.0

 
 
 
3985, 4025, 4031, and 4045 Sorrento Valley Boulevard
 
103,111

 
—

 
—

 
103,111

 
4
 
1,174

 
48.2

 
48.2

 
 
 
Sorrento Valley
 
224,766

 
—

 
—

 
224,766

 
10
 
4,074

 
71.9

 
71.9

 
 
I-15 Corridor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13112 Evening Creek Drive
 
109,780

 
—

 
—

 
109,780

 
1
 
2,495

 
100.0

 
100.0

 
 
 
San Diego
 
3,798,141

 
233,523

 
162,156

 
4,193,820

 
52
 
$
129,793

 
94.3
%
 
90.4
%
 
RSF, annual rental revenue, and occupancy percentage include 100% of each property managed by us in North America.
 

 
29
 
 
Property Listing (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Occupancy Percentage 
 
 
 
 
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
 
 
 
 
 
 
 
 
 
 
Operating and Redevelopment
 
Market / Submarket / Address
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
Operating
 
 
Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lake Union
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
400 Dexter Avenue North
 
—

 
290,111

 
—

 
290,111

 
1
 
$
—

 
—
%
 
—
%
 
 
 
1201 and 1208 Eastlake Avenue East
 
203,369

 
—

 
—

 
203,369

 
2
 
8,748

 
100.0

 
100.0

 
 
 
1616 Eastlake Avenue East
 
168,708

 
—

 
—

 
168,708

 
1
 
8,517

 
96.7

 
96.7

 
 
 
1551 Eastlake Avenue East
 
117,482

 
—

 
—

 
117,482

 
1
 
4,833

 
100.0

 
100.0

 
 
 
199 East Blaine Street
 
115,084

 
—

 
—

 
115,084

 
1
 
6,183

 
100.0

 
100.0

 
 
 
219 Terry Avenue North
 
30,705

 
—

 
—

 
30,705

 
1
 
1,745

 
100.0

 
100.0

 
 
 
1600 Fairview Avenue East
 
27,991

 
—

 
—

 
27,991

 
1
 
1,138

 
100.0

 
100.0

 
 
 
Lake Union
 
663,339

 
290,111

 
—

 
953,450

 
8
 
31,164

 
99.2

 
99.2

 
 
Elliott Bay
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3000/3018 Western Avenue
 
47,746

 
—

 
—

 
47,746

 
1
 
1,839

 
100.0

 
100.0

 
 
 
410 West Harrison Street and 410 Elliott Avenue West
 
36,724

 
—

 
—

 
36,724

 
2
 
996

 
65.6

 
65.6

 
 
 
Elliott Bay
 
84,470

 
—

 
—

 
84,470

 
3
 
2,835

 
85.1

 
85.1

 
 
 
Seattle
 
747,809

 
290,111

 
—

 
1,037,920

 
11
 
33,999

 
97.6

 
97.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maryland
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rockville
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9800 Medical Center Drive
 
282,436

 
—

 
—

 
282,436

 
4
 
12,563

 
100.0

 
100.0

 
 
 
1330 Piccard Drive
 
131,511

 
—

 
—

 
131,511

 
1
 
2,433

 
75.7

 
75.7

 
 
 
1500 and 1550 East Gude Drive
 
90,489

 
—

 
—

 
90,489

 
2
 
1,681

 
100.0

 
100.0

 
 
 
14920 and 15010 Broschart Road
 
86,703

 
—

 
—

 
86,703

 
2
 
2,055

 
100.0

 
100.0

 
 
 
1405 Research Boulevard
 
71,669

 
—

 
—

 
71,669

 
1
 
2,104

 
100.0

 
100.0

 
 
 
5 Research Place
 
63,852

 
—

 
—

 
63,852

 
1
 
2,390

 
100.0

 
100.0

 
 
 
9920 Medical Center Drive
 
58,733

 
—

 
—

 
58,733

 
1
 
455

 
100.0

 
100.0

 
 
 
5 Research Court
 
54,906

 
—

 
—

 
54,906

 
1
 
—

 
—

 
—

 
 
 
12301 Parklawn Drive
 
49,185

 
—

 
—

 
49,185

 
1
 
1,329

 
100.0

 
100.0

 
 
 
Rockville
 
889,484

 
—

 
—

 
889,484

 
14
 
25,010

 
90.2

 
90.2

 
 
Gaithersburg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Center® – Gaithersburg I
 
377,401

 
—

 
—

 
377,401

 
4
 
8,427

 
100.0

 
100.0

 
 
 
9 West Watkins Mill Road and 910, 930, and 940 Clopper Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Center® – Gaithersburg II
 
237,137

 
—

 
—

 
237,137

 
5
 
6,131

 
100.0

 
100.0

 
 
 
708 Quince Orchard Road, 1300 Quince Orchard Boulevard, and
19, 20, and 22 Firstfield Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
401 Professional Drive
 
63,154

 
—

 
—

 
63,154

 
1
 
1,435

 
100.0

 
100.0

 
 
 
950 Wind River Lane
 
50,000

 
—

 
—

 
50,000

 
1
 
1,082

 
100.0

 
100.0

 
 
 
620 Professional Drive
 
27,950

 
—

 
—

 
27,950

 
1
 
1,191

 
100.0

 
100.0

 
 
 
Gaithersburg
 
755,642

 
—

 
—

 
755,642

 
12
 
18,266

 
100.0

 
100.0

 
 
Beltsville
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8000/9000/10000 Virginia Manor Road
 
191,884

 
—

 
—

 
191,884

 
1
 
2,463

 
100.0

 
100.0

 
 
Northern Virginia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14225 Newbrook Drive
 
248,186

 
—

 
—

 
248,186

 
1
 
5,138

 
100.0

 
100.0

 
 
 
Maryland
 
2,085,196

 
—

 
—

 
2,085,196

 
28
 
$
50,877

 
95.8
%
 
95.8
%
 
RSF, annual rental revenue, and occupancy percentage include 100% of each property managed by us in North America.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
30
 
 
Property Listing (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Occupancy Percentage 
 
 
 
 
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
 
 
 
 
 
 
 
 
 
 
Operating and Redevelopment
 
Market / Submarket / Address
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
Operating
 
 
Research Triangle Park
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research Triangle Park
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Center® – Alston
 
186,870

 
—

 
—

 
186,870

 
3
 
$
3,286

 
94.8
%
 
94.8
%
 
 
 
100, 800, and 801 Capitola Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
108/110/112/114 TW Alexander Drive
 
158,417

 
—

 
—

 
158,417

 
1
 
4,607

 
100.0

 
100.0

 
 
 
Alexandria Innovation Center® – Research Triangle Park
 
135,677

 
—

 
—

 
135,677

 
3
 
3,328

 
99.1

 
99.1

 
 
 
7010, 7020, and 7030 Kit Creek Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6 Davis Drive
 
100,000

 
—

 
—

 
100,000

 
1
 
1,260

 
100.0

 
100.0

 
 
 
7 Triangle Drive
 
96,626

 
—

 
—

 
96,626

 
1
 
3,156

 
100.0

 
100.0

 
 
 
407 Davis Drive
 
81,956

 
—

 
—

 
81,956

 
1
 
1,644

 
100.0

 
100.0

 
 
 
2525 East NC Highway 54
 
82,996

 
—

 
—

 
82,996

 
1
 
1,690

 
100.0

 
100.0

 
 
 
601 Keystone Park Drive
 
77,395

 
—

 
—

 
77,395

 
1
 
1,304

 
100.0

 
100.0

 
 
 
6040 George Watts Hill Drive
 
61,547

 
—

 
—

 
61,547

 
1
 
2,051

 
100.0

 
100.0

 
 
 
5 Triangle Drive
 
32,120

 
—

 
—

 
32,120

 
1
 
824

 
100.0

 
100.0

 
 
 
6101 Quadrangle Drive
 
30,122

 
—

 
—

 
30,122

 
1
 
539

 
100.0

 
100.0

 
 
 
Research Triangle Park
 
1,043,726

 
—

 
—

 
1,043,726

 
15
 
23,689

 
99.0

 
99.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canada
 
256,967

 
—

 
—

 
256,967

 
3
 
6,484

 
99.2

 
99.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-cluster markets
 
268,689

 
—

 
—

 
268,689

 
6
 
5,992

 
87.7

 
87.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17,986,661

 
1,698,972

 
162,156

 
19,847,789

 
198
 
784,380

 
96.6
%
 
95.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Properties held for sale in North America
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6146 Nancy Ridge Drive
 
21,940

 
—

 
—

 
21,940

 
1
 
—

 
—
%
 
—
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total – North America
 
18,008,601

 
1,698,972

 
162,156

 
19,869,729

 
199
 
$
784,380

 
 
 
 
 
RSF, annual rental revenue, and occupancy percentage include 100% of each property managed by us in North America.

 
31
 
 
 
q416headerlogo.jpg
Incremental Annual Net Operating Income from Development and Redevelopment of New Class A Properties
December 31, 2016
 
 









q416incrementalnoi.jpg


(1)
Represents incremental annual net operating income upon stabilization of our development and redevelopment of new Class A properties, including only our share of real estate joint venture projects. RSF and percentage leased represent 100% of each property.

 
32
 
 
 
q416headerlogo.jpg
Sustainability and Health and Wellness
December 31, 2016
 
 

q416sustainability.jpg
(1)    Upon completion of 17 in-process LEED certification projects.

 
33
 
 
Investments in Real Estate
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands, except per SF amounts)
 
 

 
 
Investments in Real Estate
 
 
 
Per SF (1)
 
Square Feet
 
 
 
 
%
 
 
Consolidated
 
Unconsolidated
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental properties
 
$
9,526,250

 
90
%
 
$
541

 
17,594,802

 
413,799

 
18,008,601

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Development and redevelopment projects:
 


 
 
 
 
 
 
 
 
 
 
 
Projects to be delivered in 2017
 
748,854

 
7

 
533

 
1,405,117

 
—

 
1,405,117

 
Projects to be delivered in 2018 and 2019
 
60,400

 
1

 
132

 
456,011

 
—

 
456,011

 
Development and redevelopment projects
 
809,254

 
8

 
435

 
1,861,128

 
—

 
1,861,128

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental properties and development/redevelopment projects
 
10,335,504

 
 
 
531

 
19,455,930

 
413,799

 
19,869,729

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Future value-creation projects
 
253,551

 
2

 
48

 
5,292,631

 
—

 
5,292,631

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Value-creation pipeline
 
1,062,805

 
10

 
149

 
7,153,759

 
—

 
7,153,759

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross investments in real estate – North America
 
10,589,055

 
100
%
 
$
428

 
24,748,561

 
413,799

 
25,162,360

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: accumulated depreciation
 
(1,546,798
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net investments in real estate – North America
 
9,042,257

 
 
 
 
 
 
 
 
 
 
 
Net investments in real estate – Asia
 
35,715

 
 
 
 
 
 
 
 
 
 
 
Investments in real estate
 
$
9,077,972

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Represents cost per SF of our consolidated properties.






 
34
 
 
Development and Redevelopment of New Class A Properties Placed into Service during 2016
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 






 
 
 
 
 
 
RSF in Service
 
 
 
Unlevered Yields (1)
 
 
Our Ownership Interest
 
 
 
 
 
Placed into Service 2016
 
 
 
Total Project
 
Average Cash
 
Initial Stabilized Cash Basis
 
Initial Stabilized
Property/Market/Submarket
 
 
Date Delivered
 
Prior to 1/1/16
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
 
Total
 
Leased
 
Investment
(1) 
 
 
Consolidated development projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50 and 60 Binney Street/
Greater Boston/Cambridge
 
100%
 
9/30/16
 
—

 
—

 
—

 
530,477

 
—

 
530,477

 
99%
 
$
474,000

 
 
8.6
%
(2) 
 
 
7.7
%
(2) 
 
 
7.9
%
(2) 
1455 and 1515 Third Street/
San Francisco/Mission Bay/SoMa
 
100%
 
11/10/16
 
—

 
—

 
—

 
—

 
422,980

 
422,980

 
100%
 
$
155,000

 
 
14.5
%
(3) 
 
 
7.0
%
(3) 
 
 
14.4
%
(3) 
430 East 29th Street/
New York City/ Manhattan
 
100%
 
Various
 
354,261

 
1,783

 
62,595

 
—

 
—

 
418,639

 
100%
 
$
471,000

 
 
7.6
%
 
 
 
7.0
%
 
 
 
7.1
%
 
5200 Illumina Way, Building 6/
San Diego/University Town Center
 
100%
 
6/20/16
 
—

 
—

 
295,609

 
—

 
—

 
295,609

 
100%
 
$
68,000

 
 
8.8
%
 
 
 
7.2
%
 
 
 
8.6
%
 
4796 Executive Drive/
San Diego/University Town Center
 
100%
 
12/1/16
 
—

 
—

 
—

 
—

 
61,755

 
61,755

 
100%
 
$
41,000

 
 
8.0
%
 
 
 
7.0
%
 
 
 
7.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated redevelopment projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11 Hurley Street/
Greater Boston/Cambridge
 
100%
 
9/29/16
 
—

 
—

 
—

 
59,783

 
—

 
59,783

 
100%
 
$
36,500


 
9.8
%
(2) 
 
 
8.8
%
(2) 
 
 
9.7
%
(2) 
10290 Campus Point Drive/
San Diego/University Town Center
 
55%
 
12/2/16
 
—

 
—

 
—

 
—

 
305,006

 
305,006

 
100%
 
$
231,000

 
 
7.7
%
 
 
 
6.8
%
 
 
 
7.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated joint venture development project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
360 Longwood Avenue/
Greater Boston/Longwood Medical Area
 
27.5%
 
Various
 
259,859

 
2,508

 
51,040

 
—

 
100,392

 
413,799

 
76%
 
$
108,965

(4) 
 
8.2
%
(4) 
 
 
7.3
%
(4) 
 
 
7.8
%
(4) 
 
 
 
 
 
 
614,120

 
4,291

 
409,244

 
590,260

 
890,133

 
2,508,048

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Below is our originally disclosed total project investment and unlevered yields:
 
 
 
 
Unlevered Yields
Property
 
Investment
 
Average Cash (Original)
 
Change
 
Initial Stabilized Cash Basis (Original)
 
Change
 
Initial Stabilized (Original)
 
Change
50 and 60 Binney Street
 
$
500,000

 
8.1
%
 
0.5
 %
 
7.3
%
 
0.4
 %
 
7.4
%
 
0.5
 %
430 East 29th Street
 
$
463,200

 
7.1
%
 
0.5
 %
 
6.6
%
 
0.4
 %
 
6.5
%
 
0.6
 %
5200 Illumina Way, Building 6
 
$
69,900

 
8.6
%
 
0.2
 %
 
7.0
%
 
0.2
 %
 
8.4
%
 
0.2
 %
4796 Executive Drive
 
$
42,200

 
7.7
%
 
0.3
 %
 
6.8
%
 
0.2
 %
 
7.1
%
 
0.3
 %
11 Hurley Street
 
$
41,000

 
8.8
%
 
1.0
 %
 
7.9
%
 
0.9
 %
 
8.6
%
 
1.1
 %
10290 Campus Point Drive
 
$
241,000

 
7.6
%
 
0.1
 %
 
6.8
%
 
—
 %
 
7.0
%
 
0.1
 %
360 Longwood Avenue
 
$
108,965

 
9.3
%
 
(1.1
)%
 
8.3
%
 
(1.0
)%
 
8.9
%
 
(1.1
)%
 
Incremental Annual
Net Operating Income
 
$92M
 

(2)
Improvement of our initial yields is due to a variety of factors, including (i) use of Building Information Modeling (BIM), (ii) avoided use of owner’s contingency, (iii) early use of consultants, (iv) co-location of consultants during construction, and (v) adaptive reuse of special permit.
(3)
See page 2 of our Earnings Press Release for additional discussion of our acquisition of the remaining 49% ownership interest.
(4)
Our project cost at completion and unlevered yields are based upon our share of the investment in real estate, including costs incurred directly by us outside of the real estate joint venture.

 
35
 
 
 
 
Development and Redevelopment of New Class A Properties Placed into Service during 2016 (continued)
q416headerlogo.jpg
 
 
December 31, 2016
 
 
 

50 Binney Street
 
60 Binney Street
 
360 Longwood Avenue
 
11 Hurley Street
 
430 East 29th Street
Greater Boston/Cambridge
 
Greater Boston/Cambridge
 
Greater Boston/Longwood Medical Area
 
Greater Boston/Cambridge
 
New York City/Manhattan
274,734 RSF
 
255,743 RSF
 
413,799 RSF
 
59,783 RSF
 
418,639 RSF
Sanofi Genzyme
 
bluebird bio, Inc.
 
Dana-Farber Cancer Institute, Inc.
The Children’s Hospital Corporation
 
Editas Medicine, Inc.
 
Roche/New York University/Others
q416binney50.jpg
 
q416binney60.jpg
 
q416longwood360.jpg
 
q416hurley11.jpg
 
q416westtower430.jpg
1455 and 1515 Third Street (1)
 
10290 Campus Point Drive
 
5200 Illumina Way, Building 6
 
4796 Executive Drive
 
Incremental annual net
San Francisco/Mission Bay/SoMa
 
San Diego/University Town Center
 
San Diego/University Town Center
 
San Diego/University Town Center
 
422,980 RSF
 
305,006 RSF
 
295,609 RSF
 
61,755 RSF
 
operating income (2)
Uber Technologies, Inc.
 
Eli Lilly and Company
 
Illumina, Inc.
 
Otonomy, Inc.
 
 
 
 
 
$92M
q416uber.jpg
 
q416campuspointe.jpg
 
q416illuminaway.jpg
 
q416executive4796.jpg
 
 
 
 
 
 
 
 
 
 
 

(1)
Refer to page 2 of our Earnings Press Release for a discussion of our acquisition of the remaining 49% ownership interest in our real estate joint venture with Uber Technologies, Inc.
(2)
Represents incremental annual net operating income upon stabilization of our development and redevelopment of new Class A properties, including only our share of real estate joint venture projects.

 
36
 
 
Visible-Growth Highly Leased Pipeline – 2017 Deliveries and Other Recent Development Commencements
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 

 
 
Dev/ Redev
 
Project RSF
 
Percentage
 
Project Start
 
Occupancy
Property/Market/Submarket
 
 
In Service
 
CIP
 
Total
 
Leased
 
Negotiating
 
Total
 
 
Initial
 
Stabilized
400 Dexter Avenue North/Seattle/Lake Union
 
Dev
 
—

 
290,111
 
290,111
 
83
%
 
17
%
 
100
%
 
2Q15
 
1Q17
 
2017
510 Townsend Street/San Francisco/Mission Bay/SoMa
 
Dev
 
—

 
300,000
 
300,000
 
100
%
 
—
%
 
100
%
 
3Q15
 
3Q17
 
2017
5200 Illumina Way, Parking Structure/San Diego/University Town Center
 
Dev
 
—

 
N/A
 
N/A
 
100
%
 
—
%
 
100
%
 
2Q16
 
3Q17
 
2017
100 Binney Street/Greater Boston/Cambridge
 
Dev
 
—

 
431,483
 
431,483
 
48
%
 
31
%
 
79
%
 
3Q15
 
4Q17
 
2017
505 Brannan Street, Phase I/San Francisco/Mission Bay/SoMa
 
Dev
 
—

 
150,000
 
150,000
 
100
%
 
—
%
 
100
%
 
1Q16
 
4Q17
 
2017
ARE Spectrum/San Diego/Torrey Pines
 
Dev
 
102,938

 
233,523
 
336,461
 
97
%
 
—
%
 
97
%
 
2Q16
 
4Q17
 
2017
 
 
 
 
102,938

 
1,405,117
 
1,508,055
 
81
%
 
12
%
 
93
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9625 Towne Centre Drive/San Diego/University Town Center
 
Redev
 
—

 
162,156
 
162,156
 
—
%
 
100
%
 
100
%
 
3Q15
 
4Q18
 
2018
213 East Grand Avenue/South San Francisco/San Francisco
 
Dev
 
—

 
293,855
 
293,855
 
100
%
 
—
%
 
100
%
 
2Q17
 
1Q19
 
2019
 
 
 
 
—

 
456,011
 
456,011
 
64
%
 
36
%
 
100
%
 
 
 
 
 
 
Total
 
 
 
102,938

 
1,861,128
 
1,964,066
 
77
%
 
18
%
 
95
%
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Unlevered Yields
Property/Market/Submarket
 
Our Ownership Interest
 
 
 
Cost to Complete
 
Total at Completion
 
Average
 Cash
 
Initial Stabilized Cash Basis
 
Initial Stabilized
 
 
In Service
 
CIP
 
 
 
 
 
400 Dexter Avenue North/Seattle/Lake Union
 
100%
 
$
—

 
$
160,936

 
$
71,064

 
$
232,000

 
7.3%
 
6.9%
 
7.2%
510 Townsend Street/San Francisco/Mission Bay/SoMa
 
100%
 
—

 
119,715

 
118,285

 
 
238,000

 
7.9%
 
7.0%
 
7.2%
5200 Illumina Way, Parking Structure/San Diego/University Town Center
 
100%
 
—

 
22,858

 
47,142

 
 
70,000

 
7.0%
 
7.0%
 
7.0%
100 Binney Street/Greater Boston/Cambridge
 
100%
 
11,096

 
269,100

 
254,804

 
 
535,000

 
7.9%
 
7.0%
 
7.7%
505 Brannan Street, Phase I/San Francisco/Mission Bay/SoMa
 
99.5%
 
—

 
64,159

 
76,841

 
 
141,000

 
8.6%
 
7.0%
 
8.2%
ARE Spectrum/San Diego/Torrey Pines
 
100%
 
64,915

 
112,086

 
100,999

 
 
278,000

 
6.9%
 
6.1%
 
6.4%
 
 
 
 
76,011

 
748,854

 
$
669,135

 
$
1,494,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9625 Towne Centre Drive/San Diego/University Town Center
 
100%
 
—

 
25,490

 
TBD

 
 
TBD

 
(1) 
 
(1) 
 
(1) 
213 East Grand Avenue/South San Francisco/San Francisco
 
100%
 
—

 
34,910

 
TBD

 
 
TBD

 
(1) 
 
(1) 
 
(1) 
 
 
 
 
—

 
60,400

 
TBD

 
 
TBD

 
 
 
 
 
 
 
 
 
Total
 
 
 
$
76,011

 
$
809,254

 
TBD

 
 
TBD

 
 
 
 
 
 
 
 
 



(1)
The design and budget of these projects are in process, and the estimated project costs with related yields will be disclosed in the future.


 
37
 
q416headerlogo.jpg
Visible-Growth Highly Leased Pipeline – 2017 Deliveries and Other Recent Development Commencements
(continued)
December 31, 2016



100 Binney Street
 
510 Townsend Street
 
505 Brannan Street, Phase I
 
213 East Grand Avenue
Greater Boston/Cambridge
 
San Francisco/Mission Bay/SoMa
 
San Francisco/Mission Bay/SoMa
 
San Francisco/South San Francisco
431,483 RSF
 
300,000 RSF
 
150,000 RSF
 
293,855 RSF
Bristol-Myers Squibb Company
 
Stripe, Inc.
 
Pinterest, Inc.
 
Merck & Co., Inc.
q416binney100.jpg
 
q416townsend510.jpg
 
q416brannan505.jpg
 
q416grand.jpg
ARE Spectrum
 
9625 Towne Centre Drive
 
400 Dexter Avenue North
 
San Diego/Torrey Pines
 
San Diego/University Town Center
 
Seattle/Lake Union
 
233,523 RSF
 
162,156 RSF
 
290,111 RSF
 
Celgene Corporation
The Medicines Company
Vertex Pharmaceuticals Incorporated
 
Negotiating
 
Juno Therapeutics, Inc.
 
q416spectrum.jpg
 
q416town9625.jpg
 
q416dexter400.jpg
 
 
 
 
 
 
 

 
38
 
 
Anticipated Near-Term and Future Development Projects
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands, except per SF amounts)
 
 


 
 
Our
Interest
 
 
 
Project SF
 
 
 
Property/Submarket
 
 
Book Value
 
Anticipated Near-Term Developments
 
Anticipated Future Developments
 
Other
Future Developments
 
Per SF (1)
 
Key future projects:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Boston
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
161 First Street/Cambridge
 
 
100%
 
 
$
5,637

 
183,644

(2) 
—

 
—

 
$
31

 
399 Binney Street (One Kendall Square)/Cambridge
 
 
100%
 
 
58,785

 
172,500

 
—

 
—

 
341

(3) 
Alexandria Technology Square®/Cambridge
 
 
100%
 
 
7,787

 
—

 
100,000

 
—

 
78

 
Other future projects
 
 
100%
 
 
5,472

 
—

 
—

 
221,955

 
25

 
San Francisco
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
88 Bluxome Street/Mission Bay/SoMa
 
 
100%
 
 
—


—

 
1,070,925

 
—

 
—

 
505 Brannan Street, Phase II/Mission Bay/SoMa
 
 
99.5%
 
 
13,581

 
—

 
165,000

 
—

 
82

 
East Grand Avenue/South San Francisco
 
 
100%
 
 
15,513

 
227,936

 
—

 
—

 
68

 
Other future projects
 
 
100%
 
 
—

 
—

 
—

 
95,620

 
—

 
New York
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East 29th Street/Manhattan
 
 
100%
 
 
—

 
420,000

 
—

 
—

 
—

 
San Diego
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5200 Illumina Way/University Town Center
 
 
100%
 
 
10,846

 
—

 
386,044

 
—

 
28

 
Campus Point Drive/University Town Center
 
 
100%
 
 
11,388

 
315,000

 
—

 
—

 
36

 
Other future projects
 
 
100%
 
 
26,041

 
—

 
—

 
193,895

 
134

 
Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1150/1165/1166 Eastlake Avenue East/Lake Union
 
 
100%
 
 
36,138

 
—

 
366,000

 
—

 
99

 
1818 Fairview Avenue East/Lake Union
 
 
100%
 
 
10,810

 
188,490

 
—

 
—

 
57

 
Maryland
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9800 Medical Center Drive/Rockville
 
 
100%
 
 
4,682

 
180,000

 
—

 
—

 
26

 
Other future projects
 
 
100%
 
 
14,375

 
—

 
—

 
408,000

 
35

 
Research Triangle Park
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6 Davis Drive/Research Triangle Park
 
 
100%
 
 
16,555

 
—

 
1,000,000

 
—

 
17

 
Other future projects
 
 
100%
 
 
4,150

 
—

 
—

 
76,262

 
54

 
Non-cluster Markets – other future projects
 
 
100%
 
 
11,791

 
—

 
—

 
592,285

 
20

 
Key future projects
 
 
 
 
 
$
253,551

 
1,687,570

 
3,087,969

 
1,588,017

 
$
48

 
Future value-creation projects
 
 
 
 
 
 
 
6,363,556
 
 
 
Acquisition completed in January 2017 – 88 Bluxome Street
 
 
 
 
 
 
 
(1,070,925)
 
 
 
Total future value-creation projects as of December 31, 2016
 
 
 
 
 
 
 
5,292,631
 
 
 

(1)
Excludes 88 Bluxome Street acquisition completed in January 2017.
(2)
Represents approximately 130-140 multi-family residential units.
(3)
Includes the cost of design work performed prior and subsequent to acquisition.

 
39
 
 
 
q416headerlogo.jpg
Anticipated Near-Term and Future Development Projects (continued)
December 31, 2016
 
 


399 Binney Street (One Kendall Square)
 
East Grand Avenue
 
East 29th Street
 
Greater Boston/Cambridge
 
San Francisco/South San Francisco
 
Manhattan/New York City
 
172,500 SF
 
227,936 SF
 
420,000 SF
 
q416binney399.jpg
 
q416eastgrand.jpg
 
q416manhattan.jpg
 
 
 
 
 
 
 

Campus Point Drive
 
1818 Fairview Avenue East
 
9800 Medical Center Drive
 
San Diego/University Town Center
 
Seattle/Lake Union
 
Maryland/Rockville
 
315,000 SF
 
188,490 SF
 
180,000 SF
 
q416campuspoint.jpg
 
q416fairview1818.jpg
 
q416medical9800.jpg
 
 
 
 
 
 
 



 
40
 
 
Construction Spending
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands, except per RSF amounts)
 
 


Construction Spending
 
 
Year Ended December 31, 2016
 
 
Additions to real estate – consolidated projects (1)
 
$
821,690
 
 
Investments in unconsolidated real estate joint ventures
 
11,529
 
 
Construction spending (cash basis)
 
833,219
 
 
Increase in accrued construction
 
76,848
 
 
Noncontrolling interest share of construction spending (consolidated joint ventures)
 
(101,762
)
 
Construction spending
 
$
808,305
 
 



 
Non-Revenue-Enhancing Capital Expenditures,
Tenant Improvements, and Leasing Costs (2)
 
Year Ended December 31, 2016
 
Recent Average
per RSF (3)
 
Amount
 
Per RSF
 
Non-revenue-enhancing capital expenditures
 
$
9,206

 
$
0.55

 
$
0.41

 
 
 
 
 
 
 
Tenant improvements and leasing costs:
 
 
 
 
 
 
Re-tenanted space
 
$
17,198

 
$
17.77

 
$
15.76

Renewal space
 
16,221

 
13.96

 
8.34

Total tenant improvements and leasing costs/weighted average
 
$
33,419

 
$
15.69

 
$
10.53




Projected Construction Spending
 
Year Ending
December 31, 2017
Development and redevelopment projects
 
$
760,000
 
Contributions from noncontrolling interests (consolidated joint ventures)
 
 
(15,000
)
Generic laboratory infrastructure/building improvement projects
 
 
108,000
 
Non-revenue-enhancing capital expenditures and tenant improvements
 
 
12,000
 
Total projected construction spending
 
 
865,000
 
Guidance range
 
$
815,000
–
915,000
 
 
 
 
 
 
2017 Disciplined Allocation of Capital
92% Allocation to Urban Innovation Submarkets
q416capitalallocation.jpg

(1)
Includes revenue-enhancing projects and non-revenue-enhancing capital expenditures.
(2)
Excludes amounts that are recoverable from tenants, revenue enhancing, or related to properties that have undergone redevelopment.
(3)
Represents the average of the five years ended December 31, 2016.


 
41
 
 
Joint Venture Financial Information
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 


We present components of operating results and balance sheet information for the share of our consolidated real estate joint ventures attributable to noncontrolling interests and for our share of investment in an unconsolidated real estate joint venture. These amounts are estimated by computing, for each joint venture that we consolidate in our financial statements, the noncontrolling interest percentage of each financial item to arrive at the cumulative noncontrolling interest share of each component presented. In addition, for our real estate joint venture that we do not control and do not consolidate, we apply our economic ownership percentage to the unconsolidated real estate joint venture to arrive at our proportionate share of each component presented.
 
December 31, 2016
 
 
Noncontrolling Interest Share of Consolidated Real Estate JVs
 
Our Share of Unconsolidated
Real Estate JVs
 
Investments in real estate
$
485,934

 
$
92,799

 
Cash and cash equivalents
12,703

 
3,284

 
Other assets
27,266

 
8,141

 
Secured notes payable
—

 
(51,057
)
 
Other liabilities
(39,421
)
 
(2,946
)
 
Redeemable noncontrolling interests
(11,307
)
(2) 
—

 
 
$
475,175

 
$
50,221

 
 
 
 
 
 
 
Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures
 
Our Share of Unconsolidated
Real Estate Joint Ventures (1)
 
4Q16
 
2016
 
4Q16
 
2016
Total revenues
$
9,371

 
$
34,425

 
$
2,554

 
$
8,746

Rental operations
(2,439
)
 
(9,217
)
 
(1,087
)
 
(3,349
)
 
6,932

 
25,208

 
1,467

 
5,397

General and administrative
(68
)
 
(178
)
 
(19
)
 
(87
)
Interest
—

 
—

 
(707
)
 
(2,787
)
Depreciation and amortization
(2,598
)
 
(9,349
)
 
(655
)
 
(2,707
)
Impairment of real estate
(8
)
 
(594
)
 
—

 
—

Net income (loss) (2)
$
4,258

 
$
15,087

 
$
86

 
$
(184
)
 
 
 
 
 
 
 
 

Consolidated Real Estate Joint Ventures
 
Property/Market/Submarket
 
Noncontrolling (3)
Interest Share
 
225 Binney Street/Greater Boston/Cambridge
 
70%
 
1500 Owens Street/San Francisco/Mission Bay/SoMa
 
49.9%
 
409 and 499 Illinois Street/San Francisco/Mission Bay/SoMa
 
40%
 
10290 and 10300 Campus Point Drive/San Diego/
University Town Center
 
45%
 
 
 
 
 
Unconsolidated Real Estate Joint Ventures
 
Property/Market/Submarket
 
Our Share
 
360 Longwood Avenue/Greater Boston/Longwood Medical Area
 
27.5%
 
1455 and 1515 Third Street/San Francisco/Mission Bay/SoMa
 
(1) 
 
 
 
 
 
Our unconsolidated real estate joint venture at 360 Longwood Avenue has a non-recourse, secured construction loan that includes the following key terms:
Tranche
 
Maturity Date
 
Stated Rate
 
Outstanding Balance
 
Remaining Commitments
 
Total
Fixed rate
 
 
April 1, 2017
(4) 
 
5.25
%
 
 
$
173,226

 
$
2,015

 
$
175,241

Floating rate (5)
 
 
April 1, 2017
(4) 
 
L+3.75
%
 
 
12,557

 
25,402

 
37,959

 
 
 
 
 
 
 
 
 
185,783

 
$
27,417

 
$
213,200

Unamortized deferred financing costs
 
 
 
 
(117
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
185,666

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Prior to November 10, 2016, we held a 51% interest in 1455 and 1515 Third Street and accounted for this as an unconsolidated real estate joint venture. On November 10, 2016, we acquired the remaining 49% interest in this real estate joint venture and now account for this entity on a consolidated basis. “Our Share of Unconsolidated Real Estate Joint Ventures” includes operating results prior to November 10, 2016.
(2)
Represents a redeemable noncontrolling interest in our consolidated real estate project at 213 East Grand Avenue, located in our South San Francisco submarket, aggregating 293,855 RSF. The real estate joint venture earns a fixed preferred return of 8.4% which is excluded from our net income calculation.
(3)
In addition to the consolidated real estate joint ventures listed, various partners hold insignificant interests in three other properties.
(4)
We have two, one-year options to extend the stated maturity date to April 1, 2019, subject to certain conditions. The real estate joint venture expects to refinance the existing secured construction loan in connection with the anticipated sale of a condo interest in the 360 Longwood Avenue real estate joint venture. See page 6 of our Earnings Press Release for additional discussion.
(5)
Borrowings under the floating rate tranche have an interest rate floor equal to 5.25% and are subject to an interest rate cap on LIBOR of 3.50%.


 
42
 
 
Real Estate Investments in Asia
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 


    
In March 2016, we recognized an impairment charge of $29.0 million for two land parcels in India that met the criteria for classification as held for sale. In April 2016, our Board of Directors approved the monetization of our remaining real estate investments in Asia in order to invest capital into our highly leased value-creation pipeline. As a result of this decision, we recognized an aggregate impairment charge of $154.1 million during 2Q16 to reduce our net book value to fair value less cost to sell. During 3Q16 and 4Q16, we updated our assumptions of fair value for our remaining real estate investments located in Asia and recognized additional impairment charges of $7.3 million and $3.9 million, respectively. During 4Q16, we completed the dispositions of our remaining land parcels in India aggregating 168 acres for a sales price of approximately $53.4 million. As of December 31, 2016, we had no remaining investments in real estate in India.
    
Dispositions – Asia
 
Rental Properties
 
Land Parcels
 
Sales Price
 
 
Number
 
RSF
 
Number
 
Acres
 
Completed dispositions as of December 31, 2016
 
6

 
566,355

 
6

 
196

 
$
66,131

Remaining assets held for sale in China
 
2

 
634,328

 
—

 
—

 
TBD

Total
 
8

 
1,200,683

 
6

 
196

 





 
Three Months Ended
 
Year Ended
 
Operating Information
December 31, 2016
 
December 31, 2016
 
Total revenues
$
980

 
$
10,989

 
Operating expenses
(1,058
)
 
(8,822
)
 
 
(78
)
 
2,167

 
General and administrative expenses
(62
)
 
(2,216
)
 
 
(140
)
 
(49
)
 
Depreciation expense
—

 
(3,009
)
 
Impairment of real estate
(3,922
)
 
(194,346
)
 
Net loss
$
(4,062
)
 
$
(197,404
)
 







 
43
 
 
Investments
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 


Public/Private Mix
(Cost)
 
Tenant/Non-Tenant Mix
(Cost)
 
 
 
 
 
 
 
 
 
q416pubprimix.jpg
 
q416tenantmix.jpg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment
Type
 
Cost
 
Net Unrealized Gains
 
Total
 
Number of Investments

221

Average Cost

$1.5M
Public
 
$
41,392

 
$
19,293

 
$
60,685

 
Private
 
281,792

 
—

 
281,792

 
Total
 
$
323,184

 
$
19,293

 
$
342,477

 

 
44
 
 
Key Credit Metrics
q416headerlogo.jpg
December 31, 2016
(Dollars in millions)
 
 


Net Debt to Adjusted EBITDA (1)
 
Net Debt and Preferred Stock to Adjusted EBITDA (1)
 
q416netdebt4s.jpg
 
 
 
 
 
q416prefstock4s.jpg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-Charge Coverage Ratio (1)
 
Liquidity
 
q416fixedcharge4s.jpg
 
 
 
 
 
$2.2B
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Availability under our $1.65 billion unsecured senior line of credit
$
1,622

 
 
Remaining construction loan commitments
340

 
 
Available-for-sale equity securities, at fair value
61

 
 
Cash, cash equivalents, and restricted cash
141

 
 
 
$
2,164

 
 
 
 
 

(1)
Quarter annualized.    

 
45
 
 
 
q416headerlogo.jpg
Summary of Debt
December 31, 2016
 
 


Debt maturities chart
(Dollars in millions)
q416debtmaturities.jpg
(1)
Reflects extension of loan maturity to August 23, 2018 that was completed in January 2017. Loan balance as of December 31, 2016 was $212.3 million.

Fixed-rate/hedged and unhedged variable-rate debt
(Dollars in thousands)
Fixed-Rate/Hedged
Variable-Rate Debt
 
Unhedged
Variable-Rate Debt
 
 
 
Weighted-Average
 
 
 
 
 
 
Remaining Term
(in years)
 
 
 
Total
 
Percentage
 
Interest Rate (1)
 
Secured notes payable
$
853,726

 
$
157,566

 
$
1,011,292

 
24.3
%
 
3.43
%
 
3.4
Unsecured senior notes payable
2,378,262

 
—

 
2,378,262

 
57.0

 
4.14

 
7.2
$1.65 billion unsecured senior line of credit
—

 
28,000

 
28,000

 
0.7

 
1.77

 
4.8
2019 Unsecured Senior Bank Term Loan
398,537

 
—

 
398,537

 
9.6

 
2.91

 
2.0
2021 Unsecured Senior Bank Term Loan
347,934

 
—

 
347,934

 
8.4

 
2.24

 
4.0
Total/weighted average
$
3,978,459

 
$
185,566

 
$
4,164,025

 
100.0
%
 
3.51
%
 
5.5
Percentage of total debt
96%

 
4%

 
100%

 
 
 
 
 
 
 

(1)
Represents the weighted-average interest rate as of the end of the applicable period, including expense/income related to our interest rate hedge agreements, amortization of debt premiums (discounts), amortization of loan fees, and other bank fees.

 
46
 
 
Summary of Debt (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 


 
 
Stated 
Rate
 
Weighted-Average Interest Rate
 
Maturity Date
 
Principal Payments Remaining for the Periods Ending December 31,
 
 
 
Unamortized (Deferred Financing Cost), (Discount)/Premium
 
 
Debt
 
 
(1) 
(2) 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Principal
 
 
Total
Secured notes payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Boston
 
L+1.35

 
2.59
%
 
8/23/17
(3) 
$
212,289

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
212,289

 
$
(923
)
 
$
211,366

Greater Boston
 
L+1.50

 
2.20

 
1/28/19
(4) 
—

 
—

 
250,959

 
—

 
—

 
—

 
250,959

 
(2,487
)
 
248,472

Greater Boston
 
L+2.00

 
2.80

 
4/20/19
(4) 
—

 
—

 
101,512

 
—

 
—

 
—

 
101,512

 
(3,096
)
 
98,416

Greater Boston, San Diego, Seattle, and Maryland
 
7.75

 
8.12

 
4/1/20
 
1,832

 
1,979

 
2,138

 
104,352

 
—

 
—

 
110,301

 
(1,086
)
 
109,215

San Diego
 
4.66

 
5.02

 
1/1/23
 
1,412

 
1,608

 
1,686

 
1,763

 
1,852

 
28,201

 
36,522

 
(397
)
 
36,125

Greater Boston
 
3.93

 
3.18

 
3/10/23
 
—

 
1,091

 
1,505

 
1,566

 
1,628

 
76,210

 
82,000

 
3,338

 
85,338

Greater Boston
 
4.82

 
3.38

 
2/6/24
 
—

 
2,720

 
3,090

 
3,217

 
3,406

 
190,567

 
203,000

 
18,566

 
221,566

San Francisco
 
6.50

 
6.73

 
7/1/36
 
21

 
22

 
24

 
24

 
26

 
677

 
794

 
—

 
794

Secured debt weighted-average interest rate/subtotal
 
3.73
%
 
3.43

 
 
 
215,554

 
7,420

 
360,914

 
110,922

 
6,912

 
295,655

 
997,377

 
13,915

 
1,011,292

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Unsecured Senior Bank Term Loan
 
L+1.20
%
 
2.91

 
1/3/19
 
—

 
—

 
400,000

 
—

 
—

 
—

 
400,000

 
(1,463
)
 
398,537

2021 Unsecured Senior Bank Term Loan
 
L+1.10
%
 
2.24

 
1/15/21
 
—

 
—

 
—

 
—

 
350,000

 
—

 
350,000

 
(2,066
)
 
347,934

$1.65 billion unsecured senior line of credit
 
L+1.00
%
(5) 
1.77

 
10/29/21
 
—

 
—

 
—

 
—

 
28,000

 
—

 
28,000

 
—

 
28,000

Unsecured senior notes payable
 
2.75
%
 
2.95

 
1/15/20
 
—

 
—

 
—

 
400,000

 
—

 
—

 
400,000

 
(2,404
)
 
397,596

Unsecured senior notes payable
 
4.60
%
 
4.72

 
4/1/22
 
—

 
—

 
—

 
—

 
—

 
550,000

 
550,000

 
(3,404
)
 
546,596

Unsecured senior notes payable
 
3.90
%
 
4.02

 
6/15/23
 
—

 
—

 
—

 
—

 
—

 
500,000

 
500,000

 
(3,812
)
 
496,188

Unsecured senior notes payable
 
4.30
%
 
4.46

 
1/15/26
 
—

 
—

 
—

 
—

 
—

 
300,000

 
300,000

 
(4,346
)
 
295,654

Unsecured senior notes payable
 
3.95
%
 
4.11

 
1/15/27
 
—

 
—

 
—

 
—

 
—

 
350,000

 
350,000

 
(4,996
)
 
345,004

Unsecured senior notes payable
 
4.50
%
 
4.58

 
7/30/29
 
—

 
—

 
—

 
—

 
—

 
300,000

 
300,000

 
(2,776
)
 
297,224

Unsecured debt weighted average/subtotal
 
 
 
3.75

 
 
 
—

 
—

 
400,000

 
400,000

 
378,000

 
2,000,000

 
3,178,000

 
(25,267
)
 
3,152,733

Weighted-average interest rate/total
 
 
 
3.51
%
 
 
 
$
215,554

 
$
7,420

 
$
760,914

 
$
510,922

 
$
384,912

 
$
2,295,655

 
$
4,175,377

 
$
(11,352
)
 
$
4,164,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balloon payments
 
 
 
 
 
 
 
$
212,289

 
$
—

 
$
752,471

 
$
503,979

 
$
378,000

 
$
2,283,417

 
$
4,130,156

 
$
—

 
$
4,130,156

Principal amortization
 
 
 
 
 
 
 
3,265

 
7,420

 
8,443

 
6,943

 
6,912

 
12,238

 
45,221

 
(11,352
)
 
33,869

Total debt
 
 
 
 
 
 
 
$
215,554

 
$
7,420

 
$
760,914

 
$
510,922

 
$
384,912

 
$
2,295,655

 
$
4,175,377

 
$
(11,352
)
 
$
4,164,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate/hedged variable-rate debt
 
 
 
 
 
 
 
$
153,265

 
$
7,420

 
$
663,443

 
$
510,922

 
$
356,912

 
$
2,295,655

 
$
3,987,617

 
$
(9,158
)
 
$
3,978,459

Unhedged variable-rate debt
 
 
 
 
 
 
 
62,289

 
—

 
97,471

 
—

 
28,000

 
—

 
187,760

 
(2,194
)
 
185,566

Total debt
 
 
 
 
 
 
 
$
215,554

 
$
7,420

 
$
760,914

 
$
510,922

 
$
384,912

 
$
2,295,655

 
$
4,175,377

 
$
(11,352
)
 
$
4,164,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Represents the weighted-average interest rate as of the end of the applicable period, including expense/income related to our interest rate hedge agreements, amortization of debt premiums (discounts), amortization of loan fees, and other bank fees.
(2)
Reflects any extension options that we control.
(3)
In January 2017, we exercised our option and extended the maturity date by one year to August 23, 2018.
(4)
See our table of secured construction loans on the following page regarding options to extend maturity dates.
(5)
Our $1.65 billion unsecured senior line of credit contains a feature that allows lenders to competitively bid on the interest rate for borrowings under the facility. This may result in an interest rate that is below the stated rate. In addition to the cost of borrowing, the facility is subject to an annual facility fee of 0.20%, based on the aggregate commitments. Unamortized deferred financing costs related to our unsecured senior line of credit are classified in other assets and are excluded from the calculation of the weighted-average interest rate.


 
47
 
 
Summary of Debt (continued)
q416headerlogo.jpg
December 31, 2016
(Dollars in thousands)
 
 


Secured construction loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property/Market/Submarket
 
Stated Rate
 
Maturity Date
 
Outstanding
Balance
 
Remaining Commitments
 
Aggregate
Commitments
75/125 Binney Street/Greater Boston/Cambridge
 
 
L+1.35
%
 
 
 
8/23/17
(1)
 
$
212,289

 
$
38,111

 
$
250,400

50 and 60 Binney Street/Greater Boston/Cambridge
 
 
L+1.50
%
 
 
 
1/28/19
(2)
 
250,959

 
99,041

 
350,000

100 Binney Street/Greater Boston/Cambridge
 
 
L+2.00
%
(3)
 
 
4/20/19
(4)
 
101,512

 
202,769

 
304,281

 
 
 
 
 
 
 
 
 
 
$
564,760

 
$
339,921

 
$
904,681


(1)
In January 2017, we exercised our option to extend the stated maturity date by one year to August 23, 2018.
(2)
We have two, one-year options to extend the stated maturity date to January 28, 2021, subject to certain conditions.
(3)
See the interest rate cap agreements in table at the bottom of this page.
(4)
We have two, one-year options to extend the stated maturity date to April 20, 2021, subject to certain conditions.

Debt covenants
 
Unsecured Senior Notes Payable
 
$1.65 Billion Unsecured Senior Line of Credit and
Unsecured Senior Bank Term Loans
Debt Covenant Ratios(1)
 
Requirement
 
Actual
 
Requirement
 
Actual
Total Debt to Total Assets
 
≤ 60%
 
36%
 
≤ 60.0%
 
30.6%
Secured Debt to Total Assets
 
≤ 40%
 
9%
 
≤ 45.0%
 
7.5%
Consolidated EBITDA to Interest Expense
 
≥ 1.5x
 
5.8x
 
≥ 1.50x
 
3.42x
Unencumbered Total Asset Value to Unsecured Debt
 
≥ 150%
 
281%
 
N/A
 
N/A
Unsecured Leverage Ratio
 
N/A
 
N/A
 
≤ 60.0%
 
31.8%
Unsecured Interest Coverage Ratio
 
N/A
 
N/A
 
≥ 1.50x
 
6.30x

(1)
All covenant ratio titles utilize terms as defined in the respective debt agreements; therefore, EBITDA is not calculated under the definition set forth by the SEC in Exchange Act Release No. 47226.

Interest rate hedge agreements
 
 
 
Number of Contracts
 
Weighted-Average Interest Pay Rate/
Cap Rate (1)
 
Fair Value as of 12/31/16
 
 
Interest Rate Hedge Type
 
Effective Date
 
Maturity Date
 
 
 
 
Notional Amount in Effect as of
 
 
 
 
 
 
12/31/16
 
12/31/17
 
12/31/18
Swap
 
September 1, 2015
 
March 31, 2017
 
2
 
0.57%
 
$
52

 
$
100,000

 
$
—

 
$
—

Swap
 
March 31, 2016
 
March 31, 2017
 
11
 
1.15%
 
(903
)
 
1,000,000

 
—

 
—

Swap
 
March 31, 2017
 
March 31, 2018
 
15
 
1.31%
 
(1,856
)

—

 
900,000

 
—

Swap
 
March 29, 2018
 
March 31, 2019
 
6
 
1.01%
 
2,924

 
—

 
—

 
450,000

        Cap
 
July 29, 2016
 
April 20, 2019
 
2
 
2.00%
 
311

 
55,000

 
126,000

 
150,000

        Total
 
 
 
 
 
 
 
 
 
$
528

 
$
1,155,000

 
$
1,026,000

 
$
600,000


(1)
In addition to the interest pay rate for each swap agreement, interest is payable at an applicable margin over LIBOR for borrowings outstanding as of December 31, 2016, as listed under the column heading “Stated Rate” in our summary table of outstanding indebtedness and respective principal payments on page 47.

 
48
 
 
 
q416headerlogo.jpg
Definitions and Reconciliations
December 31, 2016
 
 



This section contains additional information for sections throughout this supplemental information package as well as explanations of certain non-GAAP financial measures and the reasons why we use these supplemental measures of performance and believe they provide useful information to investors. Additional detail can be found in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, as well as other documents filed with or furnished to the SEC from time to time.

Adjusted EBITDA and Adjusted EBITDA margins
 
The following table reconciles net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA:
 
Three Months Ended
(Dollars in thousands)
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
Net income (loss)
$
19,792

 
$
28,559

 
$
(108,116
)
 
$
9,966

 
$
42,977

Interest expense
31,223

 
25,850

 
25,025

 
24,855

 
28,230

Income taxes
737

 
355

 
924

 
1,095

 
2,160

Depreciation and amortization
95,222

 
77,133

 
70,169

 
70,866

 
72,245

Stock compensation expense
6,426

 
7,451

 
6,117

 
5,439

 
4,590

Loss on early extinguishment of debt
—

 
3,230

 
—

 
—

 
—

Gain on sales of real estate – rental properties
(3,715
)
 
—

 
—

 
—

 
(12,426
)
Gain on sales of real estate – land parcels
—

 
(90
)
 
—

 
—

 
—

Impairment of real estate and non-real estate investments
16,024

 
11,179

 
156,143

 
28,980

 
8,740

Adjusted EBITDA
$
165,709

 
$
153,667

 
$
150,262

 
$
141,201

 
$
146,516

 
 
 
 
 
 
 
 
 
 
Revenues
$
249,162

 
$
230,379

 
$
226,076

 
$
216,089

 
$
223,955

 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA margins
67%

 
67%

 
66%

 
65%

 
65%


We use Adjusted EBITDA as a supplemental performance measure of our core operations for financial and operational decision making, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization (“EBITDA”), excluding stock compensation expense, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, and impairments. We believe Adjusted EBITDA provides investors relevant and useful information because it allows investors to view income from our operations on an unleveraged basis before the effects of taxes, depreciation and amortization, stock compensation expense, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, and impairments.

By excluding interest expense and gains or losses on early extinguishment of debt, Adjusted EBITDA allows investors to measure our performance independent of our capital structure and indebtedness. We believe that excluding charges related to share-based compensation facilitates a comparison of our operations across periods without the variances caused by the volatility of the expense (which depends on market forces outside our control). We believe that adjusting for the effects of impairments, and gains or losses on sales of real estate allows investors to evaluate performance from period to period on a consistent basis without having to account for differences recognized because of investment and disposition decisions. Adjusted EBITDA has limitations as measures of our performance. Adjusted EBITDA does not reflect our historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. While Adjusted EBITDA is a relevant measure of performance, it does not represent net income or cash flows from operations determined in accordance with GAAP, and it should not be considered as an alternative to those indicators in evaluating performance or liquidity.
 

Annual rental revenue

Annual rental revenue represents the annualized fixed base rental amount in effect as of the end of the period, related to our operating RSF (using rental revenue including straight line rent adjustments). Annual rental revenue and measures computed using annual rental revenue are presented at 100% for all properties under our management, including properties held by our consolidated and unconsolidated real estate joint ventures. As of December 31, 2016, approximately 97% of our leases (on an RSF basis) were triple net leases, requiring tenants to pay substantially all real estate taxes, insurance, utilities, common area expenses, and other operating expenses (including increases thereto) in addition to base rent. Annual rental revenue excludes these operating expenses recovered from our tenants. Amounts recovered from our tenants related to these operating expenses are classified in “tenant recoveries” in of our consolidated statements of income.

Average cash yield

See definition of initial stabilized yield (unlevered).

Cash interest

Cash interest is equal to interest expense calculated in accordance with GAAP plus capitalized interest, less amortization of loan fees and amortization of debt premiums (discounts). See definition of fixed-charge coverage ratio for a reconciliation of interest expense, the most directly comparable financial measure calculated and presented in accordance with GAAP, to cash interest.

Class A properties and AAA locations

Class A properties are properties clustered in AAA locations that provide innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Class A properties generally command higher annual rental revenue than other classes of similar properties.

AAA locations are in close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Such locations are generally characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space.

Dividend payout ratio (common stock)

Dividend payout ratio (common stock) is the ratio of the absolute dollar amount of dividends on our common stock (shares of common stock outstanding on the respective record dates multiplied by the related dividend per share) to funds from operations attributable to Alexandria’s common stockholders – diluted, as adjusted.

Dividend yield

Dividend yield for the quarter represents the annualized quarter dividend divided by the closing common stock price at the end of the quarter.


 
49
 
 
 
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Definitions and Reconciliations (continued)
December 31, 2016
 
 


Fixed-charge coverage ratio

Fixed-charge coverage ratio is a non-GAAP financial measure representing the ratio of Adjusted EBITDA to fixed charges. This ratio is useful to investors as a supplemental measure of our ability to satisfy fixed financing obligations and preferred stock dividends. Cash interest is equal to interest expense calculated in accordance with GAAP, plus capitalized interest, less amortization of loan fees and amortization of debt (premiums) discounts. The fixed-charge coverage ratio calculation below is not directly comparable to the computation of ratio of earnings to fixed charges as defined in Item 503(d) of Regulation S-K and to the computation of “Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends” included in Exhibit 12.1 to our annual report on Form 10-K.

The following table reconciles interest expense, the most directly comparable GAAP financial measure to cash interest and fixed charges:
 
Three Months Ended
(Dollars in thousands)
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
Adjusted EBITDA
$
165,709

 
$
153,667

 
$
150,262

 
$
141,201

 
$
146,516

 
 
 
 
 
 
 
 
 
 
Interest expense
$
31,223

 
$
25,850

 
$
25,025

 
$
24,855

 
$
28,230

Capitalized interest
11,659

 
14,903

 
13,788

 
12,099

 
8,696

Amortization of loan fees
(3,080
)
 
(3,080
)
 
(2,953
)
 
(2,759
)
 
(2,654
)
Amortization of debt premiums
383

 
5

 
26

 
86

 
90

Cash interest
40,185

 
37,678

 
35,886

 
34,281

 
34,362

Dividends on preferred stock
3,835

 
5,007

 
5,474

 
5,907

 
6,246

Fixed charges
$
44,020

 
$
42,685

 
$
41,360

 
$
40,188

 
$
40,608

 
 
 
 
 
 
 
 
 
 
Fixed-charge coverage ratio:
 
 
 
 
 
 
 
 
 
– quarter annualized
3.8x

 
3.6x

 
3.6x

 
3.5x

 
3.6x

– trailing 12 months
3.6x

 
3.6x

 
3.6x

 
3.5x

 
3.5x

 
 
 
 
 
 
 
 
 
 

 
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 effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the NAREIT Board of Governors established the measurement tool of funds from operations. Since its introduction, funds from operations has become a widely used non-GAAP financial measure among equity REITs. We believe that funds from operations is helpful to investors as an additional measure of the performance of an equity REIT. Moreover, we believe that funds from operations, as adjusted, allows investors to compare our performance to the performance of other real estate companies on a consistent basis, without having to account for differences recognized because of investment and disposition decisions, financing decisions, capital structures, and capital market transactions. We compute funds from operations in accordance with standards established by the NAREIT Board of Governors in its April 2002 White Paper and related implementation guidance (the “NAREIT White Paper”). The NAREIT White Paper defines funds from operations as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciable real estate and land parcels, and impairments of depreciable real estate (excluding land parcels) plus real estate-related depreciation and amortization, and after adjustments for our share of consolidated and unconsolidated partnerships and real estate joint ventures. Impairments represent the write-down of assets when fair value over the recoverability period is less than the carrying value due to changes in general market conditions, which do not necessarily reflect the operating performance of the properties during the corresponding period.

We compute funds from operations, as adjusted, as funds from operations calculated in accordance with the NAREIT White Paper less/plus significant gains/losses on the sale of investments, plus losses on early extinguishment of debt, preferred stock redemption charges, impairments of non-depreciable real estate and land parcels, impairments of non-real estate investments, and deal costs, and the amount of such items that is allocable to our unvested restricted stock awards. Neither funds from operations nor funds from operations, as adjusted, should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of liquidity, nor are they indicative of the availability of funds for our cash needs, including our ability to make distributions.

Initial stabilized yield (unlevered)
Initial stabilized yield is calculated as the quotient of the estimated amounts of net operating income at stabilization and our investment in the property. Our initial stabilized yield excludes the benefit of leverage. Our cash rents related to our value-creation projects are expected to increase over time due to contractual annual rent escalations, and our average cash yields are generally expected to be greater than our initial stabilized yields (cash basis). Our estimates for initial stabilized yields, initial stabilized yields (cash basis), and total costs at completion represent our initial estimates at the commencement of the project. We expect to update this information upon completion of the project, or sooner, if there are significant changes to the expected project yields or costs.

•
Initial stabilized yield reflects rental income, including contractual rent escalations and any rent concessions over the term(s) of the lease(s), calculated on a straight-line basis.
•
Initial stabilized yield (cash basis) reflects cash rents at the stabilization date after initial rental concessions, if any, have elapsed and our total cash investment in the property.

Average cash yield reflects cash rents, including contractual rent escalations after initial rental concessions have elapsed, calculated on a straight-line basis, and our total cash investment in the property.



 
50
 
 
 
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Definitions and Reconciliations (continued)
December 31, 2016
 
 


Joint venture financial information
    
We present components of operating results and balance sheet information related to our joint ventures, which are not in accordance with or intended to be presentations in accordance with GAAP. We present the proportionate share of certain financial line items as follows: (i) for each real estate joint venture that we consolidate in our financial statements, but of which we own less than 100%, we apply the noncontrolling interest economic ownership percentage to each financial item to arrive at the amount of such noncontrolling interest share of each component presented; and (ii) for each real estate joint venture that we do not control, and do not consolidate, we apply our economic ownership percentage to each financial item to arrive at our proportionate share of each component presented.

The components of operating results and balance sheet information related to joint ventures do not represent our legal claim to those items. The joint venture agreement for each entity that we do not wholly own generally determines what equity holders can receive upon capital events, such as sales or refinancing, or in the event of a liquidation. Equity holders are normally entitled to their respective legal ownership of any residual cash from a joint venture only after all liabilities, priority distributions, and claims have been repaid or satisfied.

We believe this information can help investors estimate the operating results and balance sheet information related to partially owned entities. Presenting this information provides a perspective not immediately available from consolidated financial statements and one that can supplement an understanding of joint venture assets, liabilities, revenues, and expenses included in our financial results.

The components of operating results and balance sheet information related to joint ventures are limited as an analytical tool, as the overall economic ownership interest does not represent our legal claim to each of our joint ventures’ assets, liabilities, or results of operations. In addition, joint venture financial information may include financial information related to the unconsolidated real estate joint ventures that we do not control. We believe that in order to facilitate a clear understanding of our operating results and our total assets and liabilities, joint venture financial information should be examined in conjunction with our consolidated statements of income and balance sheets. Joint venture financial 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 includes the deduction for distributions to noncontrolling interests. For purposes of this calculation, changes in operating assets and liabilities are excluded as they represent timing differences.

 
Net debt to Adjusted EBITDA and net debt and preferred stock to Adjusted EBITDA

Net debt to Adjusted EBITDA is a non-GAAP financial measure that we believe is useful to investors as a supplemental measure in evaluating our balance sheet leverage. Net debt is equal to the sum of total consolidated debt less cash, cash equivalents, and restricted cash. Net debt and preferred stock is equal to the sum of net debt, as discussed above, plus preferred stock outstanding as of period end. Refer to “Adjusted EBITDA” for further information on the calculation of Adjusted EBITDA.

The following table reconciles debt to net debt, and to net debt and preferred stock, and computes the ratio of each to Adjusted EBITDA:
(Dollars in thousands)
 
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
Secured notes payable
 
$
1,011,292

 
$
789,450

 
$
722,794

 
$
816,578

 
$
809,818

Unsecured senior notes payable
 
2,378,262

 
2,377,482

 
2,376,713

 
2,031,284

 
2,030,631

Unsecured senior line of credit
 
28,000

 
416,000

 
72,000

 
299,000

 
151,000

Unsecured senior bank term loans
 
746,471

 
746,162

 
945,030

 
944,637

 
944,243

Unamortized deferred financing costs
 
29,917

 
31,420

 
34,302

 
28,474

 
30,103

Cash and cash equivalents
 
(125,032
)
 
(157,928
)
 
(256,000
)
 
(146,197
)
 
(125,098
)
Restricted cash
 
(16,334
)
 
(16,406
)
 
(13,131
)
 
(14,885
)
 
(28,872
)
Net debt
 
$
4,052,576

 
$
4,186,180

 
$
3,881,708

 
$
3,958,891

 
$
3,811,825

 
 
 
 
 
 
 
 
 
 
 
Net debt
 
$
4,052,576

 
$
4,186,180

 
$
3,881,708

 
$
3,958,891

 
$
3,811,825

7.00% Series D convertible preferred stock
 
86,914

 
161,792

 
188,864

 
213,864

 
237,163

6.45% Series E redeemable preferred stock
 
130,000

 
130,000

 
130,000

 
130,000

 
130,000

Net debt and preferred stock
 
$
4,269,490

 
$
4,477,972

 
$
4,200,572

 
$
4,302,755

 
$
4,178,988

 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
– quarter annualized
 
$
662,836

 
$
614,668

 
$
601,048

 
$
564,804

 
$
586,064

– trailing 12 months
 
$
610,839

 
$
591,646

 
$
579,880

 
$
562,454

 
$
547,739

Net debt to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
– quarter annualized
 
6.1
x
 
6.8
x
 
6.5
x
 
7.0
x
 
6.5
x
– trailing 12 months
 
6.6
x
 
7.1
x
 
6.7
x
 
7.0
x
 
7.0
x
Net debt and preferred stock to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
– quarter annualized
 
6.4
x
 
7.3
x
 
7.0
x
 
7.6
x
 
7.1
x
– trailing 12 months
 
7.0
x
 
7.6
x
 
7.2
x
 
7.6
x
 
7.6
x
 
 
 
 
 
 
 
 
 
 
 

    


 
51
 
 
 
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Definitions and Reconciliations (continued)
December 31, 2016
 
 


Net operating income

The following table reconciles income (loss) from continuing operations to total net operating income:
 
 
Three Months Ended
 
Year Ended
(Dollars in thousands)
 
12/31/16
 
12/31/15
 
12/31/16
 
12/31/15
Income (loss) from continuing operations
 
$
19,792

 
$
42,977

 
$
(49,889
)
 
$
146,157

 
 
 
 
 
 
 
 
 
Equity in (earnings) losses of unconsolidated joint venture
 
(86
)
 
174

 
184

 
(1,651
)
General and administrative expenses
 
17,458

 
15,102

 
63,884

 
59,621

Interest expense
 
31,223

 
28,230

 
106,953

 
105,813

Depreciation and amortization
 
95,222

 
72,245

 
313,390

 
261,289

Impairment of real estate
 
16,024

 
8,740

 
209,261

 
23,250

Loss on early extinguishment of debt
 
—

 
—

 
3,230

 
189

Gain on sales of real estate – rental properties
 
(3,715
)
 
(12,426
)
 
(3,715
)
 
(12,426
)
Total net operating income
 
$
175,918

 
$
155,042

 
$
643,298

 
$
582,242

 
 
 
 
 
 
 
 
 

Net operating income is a non-GAAP financial measure calculated as income (loss) from continuing operations, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding our equity in the earnings (losses) of our unconsolidated joint ventures, general and administrative expenses, interest expense, depreciation and amortization, impairment of real estate, gain or loss on early extinguishment of debt, and gain or loss on sales of real estate. We believe net operating income provides useful information to investors regarding our financial condition and results of operations because it primarily reflects those income and expense items that are incurred at the property level. Therefore, we believe net operating income is a useful measure for evaluating the operating performance of our real estate assets. Net operating income on a cash basis is net operating income adjusted to exclude the effect of straight-line rent and amortization of acquired above- and below-market lease revenue adjustments required by GAAP. We believe that net operating income on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates the timing differences between the recognition of revenue in accordance with GAAP and the receipt of payments reflected in our consolidated results.

Further, we believe net operating income is useful to investors as a performance measure because, when compared across periods, net operating income reflects trends in occupancy rates, rental rates, and operating costs, which provides a perspective not immediately apparent from income from continuing operations. Net operating income can be used to measure the initial stabilized yields of our properties by calculating the quotient of net operating income generated by a property on a straight-line basis, and our investment in the property. Net operating income excludes certain components from income from continuing operations in order to provide results that are more closely related to the results of operations of our properties. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level rather than at the property level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort comparability of operating performance at the property level. Impairments of real estate have been excluded in deriving net operating income because we do not consider impairments of real estate to be property-level operating expenses. Impairments of real estate relate to changes in the values of our assets and do not reflect the current operating performance with respect to related revenues or expenses. Our impairments of real estate represent the write-down in the value of the assets to the estimated fair value less cost to sell. These impairments result from investing decisions and deterioration in market conditions. Our calculation of net operating income also excludes charges incurred from changes in certain financing decisions, such as loss on early extinguishment of debt, as these charges often relate to corporate strategy. Property operating expenses that are included in determining net operating income primarily consist of costs that are related to our operating properties, such as utilities, repairs, and maintenance; rental expense related to ground leases; contracted services,
 
such as janitorial, engineering, and landscaping; property taxes and insurance; and property-level salaries. General and administrative expenses consist primarily of accounting and corporate compensation, corporate insurance, professional fees, office rent, and office supplies that are incurred as part of corporate office management.

We believe that in order to facilitate a clear understanding of our operating results, net operating income should be examined in conjunction with income (loss) from continuing operations as presented in our consolidated statements of income. Net operating income should not be considered as an alternative to income (loss) from continuing operations as an indication of our performance, or as an alternative to cash flows as a measure either of liquidity or our ability to make distributions.

Operating statistics

We present certain operating statistics related to our properties, including number of properties, annual rental revenue, annual rental revenue per occupied RSF, occupancy percentage, RSF, leasing activity, rental rates, and contractual lease expirations as of the end of the period. We believe these measures are useful to investors because they facilitate an understanding of certain trends for our properties. We compute operating statistics at 100% for all properties managed by us, including properties owned by our consolidated and unconsolidated real estate joint ventures.

Stabilized occupancy date

The stabilized occupancy date represents the estimated date on which the project is expected to reach occupancy of 95% or greater.

Same property comparisons

As a result of changes within our total property portfolio during the comparative periods presented, including changes from assets acquired or sold, properties placed into development or redevelopment, and development and/or redevelopment properties recently placed into service, the consolidated total rental revenues, tenant recoveries, and rental operating expenses in our operating results can show significant changes from period to period. In order to supplement an evaluation of our results of operations over a given period, we analyze the operating performance for all properties, referred to as same properties, that were fully operating for the entirety of the comparative periods presented. These properties are analyzed separately from properties acquired subsequent to the first day in the earliest comparable period presented, properties that underwent development or redevelopment at any time during the comparative periods, and corporate entities (legal entities performing general and administrative functions) that have been excluded from same property results. Additionally, rental revenues from lease termination fees, if any, are excluded from the results of same properties.



 
52
 
 
 
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Definitions and Reconciliations (continued)
December 31, 2016
 
 


The following table reconciles the number of same properties to total properties:
Development – under construction
 
Properties
 
100 Binney Street
 
1

 
510 Townsend Street
 
1

 
505 Brannan Street
 
1

 
ARE Spectrum
 
3

 
213 East Grand Avenue
 
1

 
400 Dexter Avenue North
 
1

 
5200 Illumina Way, Parking Structure
 
N/A

 
 
 
8

 
 
 
 
 
Development – placed into service after January 1, 2015
 
Properties
 
50 and 60 Binney Street
 
2

 
75/125 Binney Street
 
1

 
430 East 29th Street
 
1

 
5200 Illumina Way, Building 6
 
1

 
4796 Executive Drive
 
1

 
6040 George Watts Hill Drive
 
1

 
360 Longwood Avenue (unconsolidated joint venture)
 
1

 
1455 and 1515 Third Street
 
2

(1) 
 
 
10

 
 
 
 
 
Redevelopment – under construction
 
Properties
9625 Towne Centre Drive
 
1

 
 
1

 
 
 
Redevelopment – placed into service after January 1, 2015
 
Properties
225 Second Avenue
 
1

11055, 11065, and 11075 Roselle Street
 
3

10151 Barnes Canyon Road
 
1

11 Hurley Street
 
1

10290 Campus Point Drive
 
1

 
 
7

 
 
 
Acquisitions after January 1, 2015
 
Properties
640 Memorial Drive
 
1

Torrey Ridge Science Center
 
3

One Kendall Square
 
9

 
 
13

 
 
 
Properties held for sale
 
1

Total properties excluded from same properties
 
40

 
 
 
Same properties
 
159

 
 
 
Total properties as of December 31, 2016
 
199

 
(1)
Represents two land parcels and a parking garage 100% leased to Uber.

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, 6.45% Series E cumulative redeemable preferred stock, and common stock multiplied by the related closing price of each class of security at the end of each period presented.

Total market capitalization

Total market capitalization is equal to the sum of total equity market capitalization and total debt.
 
Unencumbered net operating income as a percentage of total net operating income
    
Unencumbered net operating income as a percentage of total net operating income is a non-GAAP financial measure that we believe is useful to investors as a performance measure of the results of operations of our unencumbered real estate assets, as it reflects primarily those income and expense items that are incurred at the unencumbered property level. We use unencumbered net operating income as a percentage of total net operating income in order to assess our compliance with our financial covenants under our debt obligations because the measure serves as a proxy for a financial measure under such debt obligations. Unencumbered net operating income is derived from assets classified in continuing operations, which are not subject to any mortgage, deed of trust, lien, or other security interest, as of the period for which income is presented.

The following table summarizes unencumbered net operating income as a percentage of total net operating income:
 
Three Months Ended
 
(Dollars in thousands)
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
 
Unencumbered net operating income
$
143,570

 
$
137,943

 
$
138,283

 
$
123,801

 
$
125,986

 
Encumbered net operating income
32,348

 
20,434

 
20,468

 
26,451

 
29,056

 
Total net operating income
$
175,918

 
$
158,377

 
$
158,751

 
$
150,252

 
$
155,042

 
Unencumbered net operating income as a percentage of total net operating income
82%

 
87%

 
87%

 
82%

 
81%

 

Weighted-average interest rate for capitalization of interest

The weighted-average interest rate required for calculating capitalization of interest pursuant to GAAP represents a weighted-average rate based on the rates applicable to borrowings outstanding during the period including expense/income related to our interest rate hedge agreements, amortization of debt premiums (discounts), amortization of loan fees, and other bank fees. A separate calculation is performed to determine our weighted-average interest rate for capitalization for each month. The rate will vary each month due to changes in variable interest rates, outstanding debt balances, the proportion of variable-rate debt to fixed-rate debt, the amount and terms of interest rate hedge agreements, and the amount of loan fee amortization.

The following table presents the weighted-average interest rate for capitalization of interest:
 
Three Months Ended
 
12/31/16
 
9/30/16
 
6/30/16
 
3/31/16
 
12/31/15
Weighted-average interest rate for capitalization of interest
3.72%
 
3.78%
 
3.70%
 
3.60%
 
3.37%



 
53
 
 
 
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Definitions and Reconciliations (continued)
December 31, 2016
 
 


Weighted-average shares of common stock outstanding – diluted

In July 2016, we entered into forward equity sales agreements for an aggregate of 7.5 million shares of our common stock at a public offering price of $101.00 per share less issuance costs and underwriters’ discount. In December 2016, we settled the forward equity sales agreements. Weighted-average shares of common stock outstanding – diluted for 3Q16 used in the computation of diluted earnings per share, and diluted funds from operations per share for 3Q16, 4Q16, and 2016, include a portion of the shares related to the forward equity sales agreements using the treasury method of accounting for these 7.5 million shares (assumed issuance of 7.5 million shares at the contractual price less the assumed repurchase of common shares at the average market price by using the net proceeds of $715.9 million from the forward equity sales agreements). The weighted-average shares of common stock outstanding – diluted during each period included the following shares related to our forward equity sales agreements:
(In thousands)
3Q16
 
4Q16
 
2016
 
Earnings per share – diluted
751

 
—

(1) 
—

(1) 
Funds from operations – diluted
751

 
480

 
309

 

(1)
Antidilutive for period.


 
54