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): October 29, 2018


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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





Item 2.02.  Results of Operations and Financial Condition.

On October 29, 2018, Alexandria Real Estate Equities, Inc. (the “Company”) issued a press release entitled “Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2018 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 (the "Securities Act"), 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 Third Quarter Ended September 30, 2018.

Forward-looking Statements

This current report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act.  These statements include words such as “forecast,” “guidance,” “projects,” “estimates,” “anticipates,” “goals,” “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.
 
 
 
 
 
 
October 29, 2018
 
By:
/s/ Joel S. Marcus
 
 
 
 
Joel S. Marcus
 
 
 
 
Executive Chairman
 
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
/s/ Stephen A. Richardson
 
 
 
 
Stephen A. Richardson
 
 
 
 
Co-Chief Executive Officer
 
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
/s/ Peter M. Moglia
 
 
 
 
Peter M. Moglia
 
 
 
 
Co-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    
99.1Alexandria Real Estate Equities, Inc.’s Earnings Press Release and Supplemental Information for the Third Quarter Ended September 30, 2018.


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Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018



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Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018
i



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(1)    See “Definitions and Reconciliations” in our Supplemental Information for additional information. As of September 30, 2018, annual rental revenue solely from investment-grade tenants within our overall tenant base and within our top 20 tenants was 47% and 75%, respectively.

 
ii
 
 
 
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Table of Contents
September 30, 2018
 
 

 
 
EARNINGS PRESS RELEASE
Page
SUPPLEMENTAL INFORMATION
 
Internal Growth
 
 
 
 
SUPPLEMENTAL INFORMATION (continued)
Page
External Growth / Investments in Real Estate
 
New Class A Development and Redevelopment Properties:
 
Balance Sheet Management
 
Definitions and Reconciliations
 
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 8 of this Earnings Press Release and Supplemental Information 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 our consolidated subsidiaries.

 
Alexandria Real Estate Equities, Inc. All Rights Reserved. © 2018
iii
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Alexandria Real Estate Equities, Inc.
Reports
Third Quarter Ended September 30, 2018, Financial and Operating Results:
Strong Internal and External Growth,
Operational Excellence and Growing Dividends



PASADENA, Calif. – October 29, 2018 – Alexandria Real Estate Equities, Inc. (NYSE:ARE)
announced financial and operating results for the third quarter ended September 30, 2018.

Key highlights

Core asset sale

We expect to sell a partial joint venture interest in a Class A property located in our Cambridge submarket with proceeds of approximately $400 million or greater.

Key sale of unconsolidated real estate joint venture interest

In September 2018, we sold our remaining 27.5% ownership interest in our 360 Longwood Avenue unconsolidated real estate joint venture, located in our Longwood Medical Area submarket at a sales price of $1,659 per rentable square foot (“RSF”), with capitalization rates of 5.1% and 4.7% (cash basis). Our share of the contractual sales price, net of debt repaid, was $70.0 million, and our gain on sale was $35.7 million.

Credit rating upgrade

In September 2018, Moody’s Investors Service upgraded our corporate issuer credit rating to Baa1/Stable from Baa2/Stable. The rating upgrade reflects the continued and significant improvement of Alexandria’s credit profile resulting from a diversified portfolio of life science properties in key markets with consistently high occupancy and high-quality tenants, many of which are less sensitive to economic cyclicality.

A REIT Industry Leading Tenant Roster

52% of annual rental revenue from investment-grade or publicly traded large cap tenants.

Continuation of strong rental rate growth

Solid rental rate increases for 3Q18, of 35.4% and 16.9% (cash basis). Rental rate increase of 35.4% represents the highest increase during the past 10 years.

Increased common stock dividend

Common stock dividend for 3Q18 of $0.93 per common share, up 7 cents, or 8.1%, over 3Q17; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.
 





Strong internal growth

•
Total revenues:
•
$341.8 million, up 19.8%, for 3Q18, compared to $285.4 million for 3Q17
•
$987.0 million, up 19.0%, for YTD 3Q18, compared to $829.3 million for YTD 3Q17
•
Net operating income (cash basis) of $867.1 million for 3Q18 annualized, up $48.4 million, or 5.9%, compared to 2Q18 annualized, and up $173.9 million, or 25.1%, compared to 4Q17 annualized
•
Same property net operating income growth:
•
3.4% and 8.9% (cash basis) for 3Q18, compared to 3Q17
•
3.8% and 9.9% (cash basis) for YTD 3Q18, compared to YTD 3Q17
•
Continued solid leasing activity and strong rental rate growth, in light of modest contractual lease expirations at the beginning of 2018 and a highly leased value-creation pipeline:
 
 
3Q18
 
YTD 3Q18
Total leasing activity – RSF
 
696,468

 
3,163,628

Lease renewals and re-leasing of space:
 
 
 
 
Rental rate increases
 
35.4%

 
26.9%

Rental rate increases (cash basis)
 
16.9%

 
15.0%

RSF (included in total leasing activity above)
 
475,863

 
1,437,676

 
 
 
 
 

Strong external growth; disciplined allocation of capital to visible, multiyear, highly leased
value-creation pipeline

•Highly leased value-creation pipeline with deliveries targeted for 2018 and 2019:
 
 
 
 
 
Property
Leased %
 
Unlevered Yields
Target Delivery
 
 
Initial Stabilized
 
Initial Stabilized (Cash)
2018
 
489,363
 RSF
 
 
78%
 
7.5%
 
7.0%
2019
 
2,119,260
 RSF
(1) 
 
89%
 
7.3%
 
6.7%
 
 
2,608,623
 RSF
 
 
86%
 
7.3%
 
6.8%
(1)     Includes 3Q18 commencement of our redevelopment project aggregating 142,400 RSF at 681 Gateway Boulevard in our South San Francisco submarket.
 
 
 
 
 
 
 
 
 
 
•
We expect to present our value-creation pipeline with deliveries targeted for 2019, 2020, 2021, and 2022 at our annual Investor Day event on November 28, 2018.

Recent and future growth in net operating income (cash basis) driven by recently delivered projects

•
Strong near-term contractual growth in annual cash rents of $29 million related to initial free rent granted on development and redevelopment projects recently placed into service (and no longer included in our value-creation pipeline) that are currently generating rental revenue.


 
1

 
 
 
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Third Quarter Ended September 30, 2018, Financial and Operating Results (continued)
September 30, 2018
 
 

Completed strategic acquisitions

•
During 3Q18, we acquired two properties and one land parcel for an aggregate purchase price of $257.0 million in key submarkets. These acquisitions included 219 East 42nd Street, a 349,947 RSF building in New York City with an opportunity to either convert the existing office space into office/laboratory space through future redevelopment or to expand the building by an additional 230,000 RSF through ground-up development. The building is currently occupied by Pfizer Inc. with a remaining lease term of six years.

Operating results
 
 
 
 
 
YTD
 
3Q18
 
3Q17
 
3Q18
 
3Q17
Net income attributable to Alexandria’s common stockholders – diluted:
In millions
$
210.2

 
$
51.3

 
$
394.1

 
$
108.6

Per share
$
1.99

 
$
0.55

 
$
3.85

 
$
1.20

 
 
 
 
 
 
 
 
Funds from operations attributable to Alexandria’s common stockholders – diluted, as adjusted:
In millions
$
173.6

 
$
140.8

 
$
504.0

 
$
407.5

Per share
$
1.66

 
$
1.51

 
$
4.92

 
$
4.49

See “Items Included in Net Income Attributable to Alexandria’s Common Stockholders” below for additional information.
Items included in net income attributable to Alexandria’s common stockholders:
 
 
 
 
 
 
 
 
 
YTD
(In millions, except per share amounts)
3Q18
 
3Q17
 
3Q18
 
3Q17
 
3Q18
 
3Q17
 
3Q18
 
3Q17
Amount
 
Per Share – Diluted
 
Amount
 
Per Share – Diluted
Realized gain on non-real estate investment
$
—

 
$
—

 
$
—

 
$
—

 
$
8.3

 
$
—

 
$
0.08

 
$
—

Unrealized gains on non-real estate investments(1)
117.2

 
—

 
1.11

 
—

 
194.5

 
—

 
1.90

 
—

Gain on sales of real estate
35.7

(2
)
14.1

(2
)
0.34

 
0.15

 
35.7

(2
)
14.5

 
0.35

 
0.15

Impairment of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate
—

 
—

 
—

 
—

 
(6.3
)
 
(0.2
)
 
(0.06
)
 
—

Non-real estate investments
—

 
—

 
—

 
—

 
—

 
(4.5
)
 
—

 
(0.05
)
Loss on early extinguishment of debt
(1.1
)
 
—

 
(0.01
)
 
—

 
(1.1
)
 
(0.7
)
 
(0.01
)
 
(0.01
)
Gain on early extinguishment of debt
0.8

(2
)
—

 
0.01

 
—

 
0.8

 
—

 
0.01

 
—

Preferred stock redemption charge
—

 
—

 
—

 
—

 
—

 
(11.3
)
 
—

 
(0.12
)
Allocation to unvested restricted stock awards
(2.4
)
 
(0.2
)
 
(0.02
)
 
—

 
(3.4
)
 
—

 
(0.03
)
 
—

Total
$
150.2

 
$
13.9

 
$
1.43

 
$
0.15

 
$
228.5

 
$
(2.2
)
 
$
2.23

 
$
(0.02
)
Weighted-average shares of common stock outstanding for calculation of earnings per share – diluted
105.4

 
93.3

 
 
 
 
 
102.4

 
90.8

(1) See “Investments” on page 42 of our Supplemental Information for additional information.
(2) Included in equity in earnings of unconsolidated real estate joint ventures in our consolidated statements of income.
 
Core operating metrics as of or for the quarter ended September 30, 2018

High-quality revenues and cash flows and operational excellence

•
Percentage of annual rental revenue in effect from:
•
Investment-grade or publicly traded large cap tenants: 52%
•
Class A properties in AAA locations: 77%
•
Occupancy of operating properties in North America: 97.3%
•
Operating margin: 71%
•
Adjusted EBITDA margin: 69%
•
Weighted-average remaining lease term:
•
All tenants: 8.6 years
•
Top 20 tenants: 12.3 years
•
See “Strong Internal Growth” on the previous page for information on our total revenues, same property net operating income growth, leasing activity, and rental rate growth.

Balance sheet management

Key metrics

•
$19.1 billion of total market capitalization
•
$2.9 billion of liquidity
 
 
3Q18
 
 
 
 
Quarter
 
Trailing 12
 
4Q18
 
 
Annualized
 
Months
 
Goal
Net debt to Adjusted EBITDA
 
5.7x
 
6.1x
 
Less than 5.5x
Fixed-charge coverage ratio
 
4.1x
 
4.3x
 
Greater than 4.0x
Unhedged variable-rate debt as a percentage of total debt
 
6%
 
N/A
 
Less than 5%
Current and future value-creation pipeline as a percentage of gross investments in real estate in North America
 
12%
 
N/A
 
8% to 12%

Key capital events
•
During 3Q18, we amended our unsecured senior line of credit and unsecured senior bank term loan to extend the maturity date of each to January 28, 2024. We recognized a loss on early extinguishment of debt of $634 thousand related to the write-off of unamortized loan fees associated with these amendments. The key changes are summarized below:
 
 
Amended Agreement
 
Change
 
 
Line of Credit
 
Term Loan
 
Line of Credit
 
Term Loan
Aggregate commitments
 
$2.2 billion
 
$350.0 million
 
Up $550 million
 
No change
Maturity date
 
January 2024
 
January 2024
 
Extended by 27 months
 
Extended by 36 months
Interest rate
 
L+0.825%
 
L+0.90%
 
Down 17.5 bps(1)
 
Down 20 bps(1)
 
 
 
 
 
 
 
 
 
(1)
Includes interest rate reductions of 10 bps and 15 bps on our unsecured senior line of credit and unsecured senior bank term loan, respectively, related to the upgrade of our corporate issuer credit rating from Moody’s Investors Service. See “Credit Rating Upgrade” on the previous page for additional information.

 
2

 
 
 
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Third Quarter Ended September 30, 2018, Financial and Operating Results (continued)
September 30, 2018
 
 

Key capital events (continued)
•
Debt repayments during 3Q18 consisted of the following (dollars in thousands):
Debt
 
Payment Date
 
Stated Rate
 
Amount
 
(Loss) Gain
on Early Extinguishment
of Debt
2019 Unsecured Senior Bank Term Loan
 
September 2018
 
L+1.20%
 
$
200,000

 
 
$
(189
)
 
Secured construction loan
 
July 2018
 
L+1.50%
 
$
150,000

 
 
$
(299
)
 
Menlo Gateway, Phase I(1)
 
August 2018
 
L+2.50%
 
$
133,137

 
 
$
761

(1) 
 
 
 
 
 
 
 
 
 
 
 
(1)
This loan for our unconsolidated real estate joint venture was refinanced with a new loan for$145.0 million that bears an interest rate of 4.15%. Gain on early extinguishment of debt is included in equity in earnings of unconsolidated real estate joint ventures in our consolidated statements of income.

•
In September 2018, we settled 857,700 shares from our January 2018 forward equity sales agreements and received proceeds of $100.0 million, net of underwriting discounts and adjustments provided in the agreements. We expect to receive additional proceeds of $606.3 million upon settlement of the remaining outstanding forward equity sales agreements prior to the expiration in April 2019, to be further adjusted as provided in the sales agreements.
•
In August 2018, we entered into a new “at the market” common stock offering program (“ATM program”), which allows us to sell up to an aggregate of $750.0 million of our common stock. During 3Q18, activities under our existing and new ATM programs were as follows:
(Dollars in thousands, except per share amounts)
 
 
3Q18
 
Shares issued
 
 
1,559,083

 
Average issue price per share
 
 
$
127.66

 
Net proceeds
 
 
$
195,504

 
Remaining availability
 
 
$
658,691

 

Corporate responsibility and industry leadership

•
During 3Q18, we received the following awards and recognitions:
•
Second consecutive “Green Star” designation and first “A” disclosure score by GRESB, and were recognized as the #1 real estate company in the world in GRESB’s Health & Well-being Module.
•
Two design awards related to our interior build-out at 505 Brannan Street in our Mission Bay/SoMa submarket:
•
Architizer A+ Award for Commercial Office Interiors greater than 25,000 SF
•
Award of Merit for Best Projects 2018 from ENR California
•
First place in the High-Rise category of the City of Seattle’s 2017 People’s Choice Urban Design Awards for our 400 Dexter Avenue North building
•
Sustainable Design Awards winner in the Sustainable Private Organization category from the San Diego Green Building Council
•
Silver Tier recognition in SANDAG’s Diamond Awards program for our commuting programs that encourage alternative transportation

 
Subsequent events
•
In October 2018, we initiated the development of the North Tower at the Alexandria Center® for Life Science – New York City, with the signing of an amendment to our long-term ground lease with the New York City Health and Hospitals Corporation and New York City Economic Corporation. The amendment enables us to begin due diligence, design and permitting on the North Tower, the campus’s third tower, which has been increased from the originally planned 420,000 RSF to approximately 550,000 RSF. The Alexandria Center® for Life Science – New York City currently comprises 728,000 RSF in the East and West Towers, and upon completion of the North Tower, the campus will consist of nearly 1.3 million RSF.
•
In October 2018, we completed the acquisition of a redevelopment building at 30-02 48th Avenue aggregating 176,759 RSF, in New York City, of which 140,098 RSF is undergoing conversion from existing office space to office/laboratory space. We also have the opportunity to convert the remaining space of 36,661 RSF, which is currently occupied, from existing office space to office/laboratory space through future redevelopment.
•
In October 2018, we repurchased, in privately negotiated transactions, 214,000 shares of our 7.00% Series D cumulative convertible preferred stock for $7.5 million, or $35.00 per share, and recognized a preferred stock redemption charge of $2.3 million.


 
3

 
 
 
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Sustainability
September 30, 2018
 
 

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(1)
For the years ended December 31, 2016 and 2017. We expect to disclose data for the year ended December 31, 2018 in 2019.
(2)
Upon completion of 13 projects in process targeting LEED certification.
(3)
Upon completion of three projects in process targeting WELL certification.
(4)
Upon completion of 12 projects in process targeting Fitwel certification.

 
4

 
 
Acquisitions
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September 30, 2018
(Dollars in thousands)
 
 


Property
 
Submarket/Market
 
Date of Purchase
 
Number of Properties
 
Operating
Occupancy
 
Square Footage
 
Unlevered Yields(1)
 
Purchase Price
 
 
 
 
Operating
 
Operating with Future Redevelopment
 
Active Development/Redevelopment
 
Future Development
 
Initial Stabilized
 
Initial Stabilized (Cash)
 
 
 
 
 
 
 
 
 
3Q18 Acquisitions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
219 East 42nd Street
 
New York City/
New York City
 
7/10/18
 
1
 
100%
 
—

 
349,947

(2) 
—

 
230,000

(2) 
6.8
%
(2) 
 
6.7
%
(2) 
 
$
203,000

 
701 Dexter Avenue North
 
Lake Union/Seattle
 
7/20/18
 
—
 
N/A
 
—

 
—

 
—

 
217,000

 
(1
)
 
 
(1
)
 
 
 
33,500

 
Other
 
Other
 
 
 
1
 
100%
 
45,626

 
—

 
—

 
—

 
N/A

 
 
N/A

 
 
 
20,500

 
 
 
 
 
 
 
2
 
 
 
45,626

 
349,947

 
—

 
447,000

 
 
 
 
 
 
 
 
257,000

 
October Acquisition:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-02 48th Avenue
 
New York City/
New York City
 
10/9/18
 
1
 
100%
 
—

 
36,661

(3) 
140,098

(3) 
—

 
(1
)
 
 
(1
)
 
 
 
75,000

 
1H18 acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
745,255

 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,077,255

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 guidance midpoint
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,080,000

 

(1)
We expect to provide total estimated costs and related yields in the future around the commencement of development and redevelopment.
(2)
Refer to the “New Class A Development and Redevelopment Properties: Summary of Pipeline” on page 38 of our Supplemental Information for additional information.
(3)
We acquired a 176,759 RSF building, of which 79% is undergoing conversion from existing office space to office/laboratory space through redevelopment and 21% is office space that is leased and occupied. Upon expiration of the in-place leases, we have the opportunity to convert this office space to office/laboratory space through redevelopment.


 
5

 
 
Dispositions
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September 30, 2018
(Dollars in thousands, except per RSF amounts)
 
 

 
 
 
 
At 100%
 
Our Share
 
Property/Submarket/Market
 
Date of Sale
 
RSF
 
Sales Price
 
Debt Repaid
 
Sales Price per RSF
 
 
 
Capitalization Rate
(Cash Basis)
 
Sales Price
 
Sales Price, Net of Debt
 
Gain
 
 
 
 
 
 
 
Capitalization Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
360 Longwood Avenue/Longwood Medical Area/Greater Boston(1)
 
9/26/18
 
210,709
 
$
349,500

 
$
95,000

 
$
1,659

 
5.1%
 
4.7%
 
$
96,113

 
$
69,988

 
$
35,678

 
Land Parcel/Northern Virginia/Maryland
 
7/2/18
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
 
6,000

 
6,000

 
—

(2) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
We sold our remaining 27.5% ownership interest in this unconsolidated real estate joint venture.
(2)
During the second quarter of 2018, we entered into an agreement to sell this land parcel and recognized an impairment of $6.3 million to lower its carrying amount to estimated fair value less selling costs.



 
6

 
 
Guidance
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September 30, 2018
(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, 2018. 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 8 of this Earnings Press Release for additional information.
Summary of Key Changes in Guidance
 
Guidance
 
Summary of Key Changes in Key Sources and Uses of Capital Guidance
 
 
Guidance Midpoint
 
 
As of 10/29/18
 
As of 7/30/18
 
 
As of 10/29/18
 
As of 7/30/18
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EPS, FFO per share, and FFO per share, as adjusted
 
See updates below(1)
 
Real estate dispositions and common equity(2)
 
 
$
1,490

 
 
 
$
1,430

 
Rental rate increases
 
22.5% to 25.5%
 
17.0% to 20.0%
 
Acquisitions
 
 
$
1,080

 
 
 
$
1,010

 
Rental rate increases (cash basis)
 
11.5% to 14.5%
 
9.5% to 12.5%
 
 
 
 
 
 
 
 
 
 
Projected Earnings per Share and Funds From Operations per Share Attributable to Alexandria’s Common Stockholders – Diluted
 
 
 
As of 10/29/18
 
As of 7/30/18
 
Earnings per share (“EPS”)
 
$4.34 to $4.36
 
$2.87 to $2.93
 
Depreciation and amortization
 
 
4.50
 
 
 
4.50
 
 
Gain on sales of real estate
 
 
(0.35)
 
 
 
—
 
 
Allocation to unvested restricted stock awards
 
 
(0.06)
 
 
 
(0.05)
 
 
Funds from operations per share
 
$8.43 to $8.45
 
$7.32 to $7.38
 
Unrealized gains on non-real estate investments(3)
 
 
(1.90)
 
 
 
(0.76)
 
 
Realized gain on non-real estate investment in 1Q18
 
 
(0.08)
 
 
 
(0.08)
 
 
Impairment of real estate – land parcels
 
 
0.06
 
 
 
0.06
 
 
Preferred stock redemption charge in October 2018
 
 
0.02
 
 
 
—
 
 
Allocation to unvested restricted stock awards
 
 
0.03
 
 
 
0.03
 
 
Other
 
 
0.03
 
 
 
—
 
 
Funds from operations per share, as adjusted
 
$6.59 to $6.61
 
$6.57 to $6.63
 
Midpoint
 
$6.60
 
$6.60
 
Key Assumptions
 
Low
 
High
 
Occupancy percentage in North America as of December 31, 2018
 
97.1%

 
97.7%

 
 
 
 
 
 
 
Lease renewals and re-leasing of space:
 
 
 
 
 
Rental rate increases
 
22.5%

 
25.5%

 
Rental rate increases (cash basis)
 
11.5%

 
14.5%

 
Same property performance:
 
 
 
 
 
Net operating income increase
 
2.5%

 
4.5%

 
Net operating income increase (cash basis)
 
9.0%

 
11.0%

 
 
 
 
 
 
 
Straight-line rent revenue
 
$
92

 
$
102

 
General and administrative expenses
 
$
85

 
$
90

 
Capitalization of interest
 
$
55

 
$
65

 
Interest expense
 
$
155

 
$
165

 
 
 
 
 
 
 
 
 
 
Guidance
as of 10/29/18
 
Key Credit Metrics
 
 
Net debt to Adjusted EBITDA – 4Q18 annualized
 
Less than 5.5x
 
Net debt and preferred stock to Adjusted EBITDA – 4Q18 annualized
 
Less than 5.5x
 
Fixed-charge coverage ratio – 4Q18 annualized
 
Greater than 4.0x
 
Unhedged variable-rate debt as a percentage of total debt as of December 31, 2018
 
Less than 5%
 
Value-creation pipeline as a percentage of gross real estate as of December 31, 2018
 
8% to 12%
 
Key Sources and Uses of Capital
 
Range
 
Midpoint
 
Key Items Remaining After 9/30/18
Sources of capital:
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities after dividends
 
$
140

 
$
180

 
$
160

 
 
 
Incremental debt
 
550

 
510

 
 
530

 
 
 
Real estate dispositions and common equity
 
1,390

 
1,590

 
 
1,490

 
$
111

(4)
Total sources of capital
 
$
2,080

 
$
2,280

 
$
2,180

 
 
 
Uses of capital:
 
 
 
 
 
 
 
 
 
 
Construction
 
$
1,050

 
$
1,150

 
$
1,100

 
$
305

 
Acquisitions
 
1,030

 
1,130

 
 
1,080

 
(5)
Total uses of capital
 
$
2,080

 
$
2,280

 
$
2,180

 
 
 
Incremental debt (included above):
 
 
 
 
 
 
 
 
 
 
Issuance of unsecured senior notes payable
 
$
900

 
$
900

 
$
900

 
 
 
Repayments of secured notes payable
 
(160
)
 
(165
)
 
 
(163
)
 
 
 
Repayment of unsecured senior bank term loan
 
(200
)
 
(200
)
 
 
(200
)
 
 
 
$2.2 billion unsecured senior line of credit/other
 
10

 
(25
)
 
 
(7
)
 
 
 
Incremental debt
 
$
550

 
$
510

 
$
530

 
 
 
(1)
Guidance range for funds from operations (“FFO”) per share, as adjusted, was reduced from six cents to two cents, with the midpoint unchanged at $6.60.
(2)
Our updated key sources and uses of capital guidance excludes the sale of a partial joint venture interest in a Class A property located in our Cambridge submarket with proceeds of approximately $400 million or greater that we expect to close over the next one to two quarters. We can provide no assurance this transaction will be completed.
(3)
Excludes future unrealized gains or losses that could be recognized in earnings from changes in fair value of equity investments after September 30, 2018. See page 42 of our Supplemental Information for additional information.
(4)
The following transactions have been completed through September 30, 2018: (a) real estate dispositions with net proceeds aggregating $76.0 million (See “Dispositions” on page 6 of this Earnings Press Release for additional information), (b) $806.5 million from our forward equity contracts, of which we have settled $200.2 million, and (c) sales of common stock under our ATM programs aggregating $496.3 million. We expect to receive proceeds of $606.3 million, to be further adjusted as provided in the forward equity sales agreements, upon settlement of the remaining forward equity sales agreements by April 2019. The proceeds of $606.3 million were calculated assuming the forward equity sales agreements will be settled entirely by the full physical delivery of shares of our common stock in exchange for cash proceeds. Although we expect to settle remaining forward equity sales agreements by the full physical delivery of shares of our common stock, we may elect cash settlement or net share settlement for all or a portion of our obligations under these agreements, either of which could result in no additional cash proceeds to us.
(5)
See “Acquisitions” on page 5 of this Earnings Press Release for additional information.

 
7

 
 
 
q318logo1.jpg
Earnings Call Information and About the Company
September 30, 2018
 
 


We will host a conference call on Tuesday, October 30, 2018, 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 third quarter ended September 30, 2018. To participate in this conference call, dial (833) 366-1125 or (412) 902-6738 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, October 30, 2018. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 10123167.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the third quarter ended September 30, 2018, is available in the “For Investors” section of our website at www.are.com or by following this link: http://www.are.com/fs/2018q3.pdf.

For any questions, please contact Joel S. Marcus, executive chairman and founder; Stephen A. Richardson, co-chief executive officer; Peter M. Moglia, co-chief executive officer and co-chief investment officer; Dean A. Shigenaga, co-president and chief financial officer; or Sara M. Kabakoff, assistant vice president – corporate communications, at (626) 578-0777.

About the Company

Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500® company, 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 $19.1 billion and an asset base in North America of 32.2 million square feet (“SF”) as of September 30, 2018. The asset base in North America includes 21.6 million RSF of operating properties and 2.6 million RSF of development and redevelopment of new Class A properties currently undergoing construction and pre-construction activities with target delivery dates ranging from 2018 through 2019. Additionally, the asset base in North America includes 8.0 million SF of intermediate-term and future development projects. Founded in 1994, Alexandria pioneered this niche 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 our 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. Alexandria also provides strategic capital to transformative life science and technology companies through our venture capital arm. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results 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 2018 earnings per share attributable to Alexandria’s common stockholders – diluted, 2018 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,” “goals,” “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.

Alexandria®, Lighthouse Design® logo, Building the Future of Life-Changing Innovation™, LaunchLabs®, Alexandria Center®, Alexandria Technology Square®, Alexandria Summit®, Alexandria Technology Center®, and Alexandria Innovation Center® are trademarks of Alexandria Real Estate Equities, Inc. All other company names, trademarks, and logos referenced herein are the property of their respective owners.


 
8

 
 
Consolidated Statements of Income
q318logo1.jpg
September 30, 2018
(In thousands, except per share amounts)
 
 

 
 
Three Months Ended
 
Nine Months Ended
 
 
9/30/18

6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Revenues:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Rental
 
$
255,496

 
$
250,635

 
$
244,485

 
$
228,025

 
$
216,021

 
$
750,616

 
$
635,156

Tenant recoveries
 
81,051

 
72,159

 
73,170

 
70,270

 
67,058

 
226,380

 
188,874

Other income
 
5,276

 
2,240

 
2,484

 
496

 
2,291

 
10,000

 
5,276

Total revenues
 
341,823

 
325,034

 
320,139

 
298,791

 
285,370

 
986,996


829,306

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental operations
 
99,759

 
91,908

 
91,771

 
88,073

 
83,469

 
283,438

 
237,536

General and administrative
 
22,660

 
22,939

 
22,421

 
18,910

 
17,636

 
68,020

 
56,099

Interest
 
42,244

 
38,097

 
36,915

 
36,082

 
31,031

 
117,256

 
92,563

Depreciation and amortization
 
119,600

 
118,852

 
114,219

 
107,714

 
107,788

 
352,671

 
309,069

Impairment of real estate
 
—

 
6,311

 
—

 
—

 
—

 
6,311

 
203

Loss on early extinguishment of debt
 
1,122

 
—

 
—

 
2,781

 
—

 
1,122

 
670

Total expenses
 
285,385

 
278,107

 
265,326

 
253,560

 
239,924

 
828,818

 
696,140

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated real estate joint ventures
 
40,718

 
1,090

 
1,144

 
376

 
14,100

 
42,952

 
15,050

Investment income(1)
 
122,203

(1) 
12,530

 
85,561

 
—

 
—

 
220,294

 
—

Gain on sales of real estate – rental properties
 
—

 
—

 
—

 
—

 
—

 
—

 
270

Gain on sales of real estate – land parcels
 
—

 
—

 
—

 
—

 
—

 
—

 
111

Net income
 
219,359

 
60,547

 
141,518

 
45,607

 
59,546

 
421,424

 
148,597

Net income attributable to noncontrolling interests
 
(5,723
)
 
(5,817
)
 
(5,888
)
 
(6,219
)
 
(5,773
)
 
(17,428
)
 
(18,892
)
Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders
 
213,636

 
54,730

 
135,630

 
39,388

 
53,773

 
403,996

 
129,705

Dividends on preferred stock
 
(1,301
)
 
(1,302
)
 
(1,302
)
 
(1,302
)
 
(1,302
)
 
(3,905
)
 
(6,364
)
Preferred stock redemption charge
 
—

 
—

 
—

 
—

 
—

 
—

 
(11,279
)
Net income attributable to unvested restricted stock awards
 
(3,395
)
 
(1,412
)
 
(1,941
)
 
(1,255
)
 
(1,198
)
 
(6,010
)
 
(3,498
)
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
 
$
208,940

 
$
52,016

 
$
132,387

 
$
36,831

 
$
51,273

 
$
394,081

 
$
108,564

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.01

 
$
0.51

 
$
1.33

 
$
0.39

 
$
0.55

 
$
3.86

 
$
1.20

Diluted
 
$
1.99

 
$
0.51

 
$
1.32

 
$
0.38

 
$
0.55

 
$
3.85

 
$
1.20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
104,179

 
101,881

 
99,855

 
95,138

 
92,598

 
101,991

 
90,336

Diluted
 
105,385

 
102,236

 
100,125

 
95,914

 
93,296

 
102,354

 
90,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per share of common stock
 
$
0.93

 
$
0.93

 
$
0.90

 
$
0.90

 
$
0.86

 
$
2.76

 
$
2.55


(1)
See “Investments” on page 42 of our Supplemental Information for additional information.

 
9

 
 
Consolidated Balance Sheets
q318logo1.jpg
September 30, 2018
(In thousands)
 
 

 
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Assets
 
 
 
 

 
 

 
 

 
 

Investments in real estate
 
$
11,587,312

 
$
11,190,771

 
$
10,671,227

 
$
10,298,019

 
$
10,046,521

Investments in unconsolidated real estate joint ventures
 
197,970

 
192,972

 
169,865

 
110,618

 
33,692

Cash and cash equivalents
 
204,181

 
287,029

 
221,645

 
254,381

 
118,562

Restricted cash
 
29,699

 
34,812

 
37,337

 
22,805

 
27,713

Tenant receivables
 
11,041

 
8,704

 
11,258

 
10,262

 
9,899

Deferred rent
 
511,680

 
490,428

 
467,112

 
434,731

 
402,353

Deferred leasing costs
 
238,295

 
232,964

 
226,803

 
221,430

 
208,265

Investments
 
957,356

 
790,753

 
724,310

 
523,254

 
485,262

Other assets
 
368,032

 
333,757

 
291,639

 
228,453

 
213,056

Total assets
 
$
14,105,566

 
$
13,562,190

 
$
12,821,196

 
$
12,103,953

 
$
11,545,323

 
 
 
 
 
 
 
 
 
 
 
Liabilities, Noncontrolling Interests, and Equity
 
 
 
 
 
 
 
 
 
 
Secured notes payable
 
$
632,792

 
$
776,260

 
$
775,689

 
$
771,061

 
$
1,153,890

Unsecured senior notes payable
 
4,290,906

 
4,289,521

 
3,396,912

 
3,395,804

 
2,801,290

Unsecured senior line of credit
 
413,000

 
—

 
490,000

 
50,000

 
314,000

Unsecured senior bank term loans
 
347,306

 
548,324

 
548,197

 
547,942

 
547,860

Accounts payable, accrued expenses, and tenant security deposits
 
907,094

 
849,274

 
783,986

 
763,832

 
740,070

Dividends payable
 
101,084

 
98,676

 
93,065

 
92,145

 
83,402

Total liabilities
 
6,692,182

 
6,562,055

 
6,087,849

 
5,620,784

 
5,640,512

 
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
 
10,771

 
10,861

 
10,212

 
11,509

 
11,418

 
 
 
 
 
 
 
 
 
 
 
Alexandria Real Estate Equities, Inc.’s stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
7.00% Series D cumulative convertible preferred stock
 
74,386

 
74,386

 
74,386

 
74,386

 
74,386

Common stock
 
1,058

 
1,033

 
1,007

 
998

 
943

Additional paid-in capital
 
6,801,150

 
6,387,527

 
6,117,976

 
5,824,258

 
5,287,777

Accumulated other comprehensive (loss) income
 
(3,811
)
 
(2,485
)
 
1,228

 
50,024

 
43,864

Alexandria Real Estate Equities, Inc.’s stockholders’ equity
 
6,872,783

 
6,460,461

 
6,194,597

 
5,949,666

 
5,406,970

Noncontrolling interests
 
529,830

 
528,813

 
528,538

 
521,994

 
486,423

Total equity
 
7,402,613

 
6,989,274

 
6,723,135

 
6,471,660

 
5,893,393

Total liabilities, noncontrolling interests, and equity
 
$
14,105,566

 
$
13,562,190

 
$
12,821,196

 
$
12,103,953

 
$
11,545,323




 
10

 
 
Funds From Operations and Funds From Operations per Share
q318logo1.jpg
September 30, 2018
(In thousands)
 
 

The following table presents a reconciliation of net income attributable to Alexandria’s common stockholders, 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
 
Nine Months Ended
 
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Net income attributable to Alexandria’s common stockholders – basic
 
$
208,940

 
$
52,016

 
$
132,387

 
$
36,831

 
$
51,273

 
$
394,081

 
$
108,564

Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)
 
1,301

 
—

 
—

 
—

 
—

 
—

 
—

Net income attributable to Alexandria’s common stockholders – diluted
 
210,241

 
52,016

 
132,387

 
36,831

 
51,273

 
394,081

 
108,564

Depreciation and amortization
 
119,600

 
118,852

 
114,219

 
107,714

 
107,788

 
352,671

 
309,069

Noncontrolling share of depreciation and amortization from consolidated real estate JVs
 
(4,044
)
 
(3,914
)
 
(3,867
)
 
(3,777
)
 
(3,608
)
 
(11,825
)
 
(10,985
)
Our share of depreciation and amortization from unconsolidated real estate JVs
 
1,011

 
807

 
644

 
432

 
383

 
2,462

 
1,119

Gain on sales of real estate – rental properties
 
—

 
—

 
—

 
—

 
—

 
—

 
(270
)
Our share of gain on sales of real estate from unconsolidated real estate JVs(2)
 
(35,678
)
 
—

 
—

 
—

 
(14,106
)
 
(35,678
)
 
(14,106
)
Gain on sales of real estate – land parcels
 
—

 
—

 
—

 
—

 
—

 
—

 
(111
)
Impairment of real estate – rental properties
 
—

 
—

 
—

 
—

 
—

 
—

 
203

Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)
 
—

 
—

 
1,302

 
—

 
—

 
3,905

 
—

Allocation to unvested restricted stock awards
 
(1,312
)
 
(1,042
)
 
(1,548
)
 
(734
)
 
(957
)
 
(4,595
)
 
(2,185
)
Funds from operations attributable to Alexandria’s common stockholders – diluted(3)
 
289,818

 
166,719

 
243,137

 
140,466

 
140,773

 
701,021

 
391,298

Unrealized gains on non-real estate investments
 
(117,188
)
 
(5,067
)
 
(72,229
)
 
—

 
—

 
(194,484
)
 
—

Realized gain on non-real estate investment
 
—

 
—

 
(8,252
)
 
—

 
—

 
(8,252
)
 
—

Impairment of land parcels and non-real estate investments
 
—

 
6,311

 
—

 
3,805

 
—

 
6,311

 
4,491

Loss on early extinguishment of debt
 
1,122

 
—

 
—

 
2,781

 
—

 
1,122

 
670

Our share of gain on early extinguishment of debt from unconsolidated real estate JVs(2)
 
(761
)
 
—

 
—

 
—

 
—

 
(761
)
 
—

Preferred stock redemption charge
 
—

 
—

 
—

 
—

 
—

 
—

 
11,279

Removal of assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)
 
(1,301
)
 
—

 
(1,302
)
 
—

 
—

 
(3,905
)
 
—

Allocation to unvested restricted stock awards
 
1,889

 
(18
)
 
1,125

 
(94
)
 
—

 
2,938

 
(227
)
Funds from operations attributable to Alexandria’s common stockholders – diluted, as adjusted
 
$
173,579

 
$
167,945

 
$
162,479

 
$
146,958

 
$
140,773

 
$
503,990

 
$
407,511


(1)
Our 7.00% Series D cumulative convertible preferred stock is assumed to be converted when basic EPS, FFO, or FFO, as adjusted, exceeds approximately $1.75 per share, subject to conversion ratio adjustments. See definition of “Weighted-Average Shares of Common Stock Outstanding – Diluted” of our Supplemental Information for additional information.
(2)
Classified in equity in earnings of unconsolidated real estate joint ventures in our consolidated statements of income.
(3)
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.

 
11

 
 
Funds From Operations and Funds From Operations per Share (continued)
q318logo1.jpg
September 30, 2018
(In thousands, except per share amounts)
 
 


The following table presents a reconciliation of net income per share attributable to Alexandria’s common stockholders, 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. Per share amounts may not add due to rounding.
 
 
Three Months Ended
 
Nine Months Ended
 
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted
 
$
1.99

 
$
0.51

 
$
1.32

 
$
0.38

 
$
0.55

 
$
3.85

 
$
1.20

Depreciation and amortization 
 
1.11

 
1.13

 
1.08

 
1.08

 
1.11

 
3.35

 
3.26

Our share of gain on sales of real estate from unconsolidated real estate JVs
 
(0.34
)
 
—

 
—

 
—

 
(0.15
)
 
(0.35
)
 
(0.15
)
Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)
 
—

 
—

 
0.01

 
—

 
—

 
(0.01
)
 
—

Allocation to unvested restricted stock awards
 
(0.01
)
 
(0.01
)
 
—

 
—

 
—

 
(0.04
)
 
—

Funds from operations per share attributable to Alexandria’s common stockholders – diluted(2)
 
2.75

 
1.63

 
2.41

 
1.46

 
1.51

 
6.80


4.31

Unrealized gains on non-real estate investments
 
(1.11
)
 
(0.05
)
 
(0.70
)
 
—

 
—

 
(1.90
)
 
—

Realized gain on non-real estate investment
 
—

 
—

 
(0.08
)
 
—

 
—

 
(0.08
)
 
—

Impairment of land parcels and non-real estate investments
 
—

 
0.06

 
—

 
0.04

 
—

 
0.06

 
0.05

Loss on early extinguishment of debt
 
0.01

 
—

 
—

 
0.03

 
—

 
0.01

 
0.01

Our share of gain on early extinguishment of debt from unconsolidated real estate JVs
 
(0.01
)
 
—

 
—

 
—

 
—

 
(0.01
)
 
—

Preferred stock redemption charge
 
—

 
—

 
—

 
—

 
—

 
—

 
0.12

Removal of assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)
 
—

 
—

 
(0.01
)
 
—

 
—

 
0.01

 
—

Allocation to unvested restricted stock awards
 
0.02

 
—

 
—

 
—

 
—

 
0.03

 
—

Funds from operations per share attributable to Alexandria’s common stockholders – diluted, as adjusted
 
$
1.66

 
$
1.64

 
$
1.62

 
$
1.53

 
$
1.51

 
$
4.92

 
$
4.49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding(1) for calculations of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share – diluted
 
105,385

 
102,236

 
100,125

 
95,914

 
93,296

 
102,354

 
90,766

Funds from operations – diluted, per share
 
105,385

 
102,236

 
100,866

 
95,914

 
93,296

 
103,097

 
90,766

Funds from operations – diluted, as adjusted, per share
 
104,641

 
102,236

 
100,125

 
95,914

 
93,296

 
102,354

 
90,766


(1)
See footnote 1 on prior page for additional information.
(2)
Calculated in accordance with standards established by the Nareit Board of Governors in its April 2002 White Paper and related implementation guidance.




 
12









SUPPLEMENTAL
INFORMATION








 
 
 
q318logo1.jpg
Company Profile
September 30, 2018
 
 

Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500® company, 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 $19.1 billion and an asset base in North America of 32.2 million SF as of September 30, 2018. The asset base in North America includes 21.6 million RSF of operating properties and 2.6 million RSF of development and redevelopment of new Class A properties currently undergoing construction and pre-construction activities with target delivery dates ranging from 2018 through 2019. Additionally, the asset base in North America includes 8.0 million SF of intermediate-term and future development projects. Founded in 1994, Alexandria pioneered this niche 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 our 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. Alexandria also provides strategic capital to transformative life science and technology companies through our venture capital arm. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results 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 52% of our annual rental revenue generated from entities with an investment-grade credit rating or publicly traded large cap tenants. The 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 and 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 our niche. Alexandria’s 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 in the real estate, life science, and technology industries provide Alexandria significant competitive advantages in attracting new business opportunities.
 
Alexandria’s executive and senior management team consists of 36 individuals, averaging 24 years of real estate experience, including 12 years with Alexandria. Our executive management team alone averages 19 years of experience with Alexandria.

EXECUTIVE MANAGEMENT TEAM
Joel S. Marcus
Executive Chairman & Founder
Stephen A. Richardson
Co-Chief Executive Officer
Peter M. Moglia
Co-Chief Executive Officer & Co-Chief Investment Officer
Dean A. Shigenaga
Co-President & Chief Financial Officer
Thomas J. Andrews
Co-President & Regional Market Director – Greater Boston
Daniel J. Ryan
Co-Chief Investment Officer & Regional Market Director – San Diego
Jennifer J. Banks
Co-Chief Operating Officer, General Counsel & Corporate Secretary
Lawrence J. Diamond
Co-Chief Operating Officer & Regional Market Director – Maryland
Vincent R. Ciruzzi
Chief Development Officer
John H. Cunningham
Executive Vice President & Regional Market Director – New York City

 
14

 
 
 
q318logo1.jpg
Investor Information
September 30, 2018
 
 

Corporate Headquarters
 
New York Stock Exchange Trading Symbols
 
Information Requests
385 East Colorado Boulevard, Suite 299
 
Common stock: ARE
 
Phone:
(626) 578-0777
Pasadena, California 91101
 
7.00% Series D preferred stock: ARE PRD
 
Email:
 
 
 
 
Web:
www.are.com
 
 
 
 
 
 
Equity Research Coverage
Alexandria is currently covered by the following research analysts. This list may be incomplete 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 our management. Alexandria does not by our reference or distribution of the information below imply our 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
 
RBC Capital Markets
Jamie Feldman / Jeffrey Spector
 
Michael Bilerman / Emmanuel Korchman
 
Anthony Paolone / Patrice Chen
 
Michael Carroll / Brian Hawthorne
(646) 855-5808 / (646) 855-1363
 
(212) 816-1383 / (212) 816-1382
 
(212) 622-6682 / (212) 622-1893
 
(440) 715-2649 / (440) 715-2653
 
 
 
 
 
 
 
Barclays Capital Inc.
 
Evercore ISI
 
Mitsubishi UFJ Securities (USA), Inc.
 
Robert W. Baird & Co. Incorporated
Ross Smotrich / Trevor Young
 
Sheila McGrath / Wendy Ma
 
Karin Ford / Ryan Cybart
 
David Rodgers
(212) 526-2306 / (212) 526-3098
 
(212) 497-0882 / (212) 497-0870
 
(212) 405-7249 / (212) 405-6591
 
(216) 737-7341
 
 
 
 
 
 
 
BTIG, LLC
 
Green Street Advisors, Inc.
 
Mizuho Securities USA Inc.
 
UBS Securities LLC
Tom Catherwood / James Sullivan
 
Daniel Ismail / Chris Darling
 
Richard Anderson / Zachary Silverberg
 
Frank Lee
(212) 738-6140 / (212) 738-6139
 
(949) 640-8780 / (949) 640-8780
 
(212) 205-8445 / (212) 205-7855
 
(415) 352-5679
 
 
 
 
 
 
 
CFRA
 
JMP Securities – JMP Group, Inc.
 
 
 
 
Kenneth Leon
 
Peter Martin
 
 
 
 
(212) 438-4638
 
(415) 835-8904
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income Coverage
 
Rating Agencies
J.P. Morgan Securities LLC
 
Wells Fargo & Company
 
Moody’s Investors Service
 
S&P Global Ratings
Mark Streeter / Jonathan Rau
 
Thierry Perrein / Kevin McClure
 
Thuy Nguyen / Reed Valutas
 
Fernanda Hernandez / Anita Ogbara
(212) 834-5086 / (212) 834-5237
 
(704) 410-3262 / (704) 410-3252
 
(212) 553-7168 / (212) 553-4169
 
(212) 438-1347 / (212) 438-5077
 
 
 
 
 
 
 

 
15

 
 
 
q318logo1.jpg
High-Quality, Diverse, and Innovative Tenants
September 30, 2018
 
 



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

Investment-Grade or
Publicly Traded Large Cap Tenants
 
Tenant Mix
 
 
 
 
q318clienttenantmix4s.jpg
 
 
 
 
 
 
 
 
52%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
of ARE’s Total
 
Annual Rental Revenue(1)
 
 
 
 
 
 
 
 
 
 
 
A REIT Industry-Leading Tenant Roster
 
Percentage of ARE’s Annual Rental Revenue(1)






(1)
Represents annual rental revenue in effect as of September 30, 2018.
(2)
Our annual rental revenue from technology tenants consists of:
•
39% from investment-grade credit rated or publicly traded large cap tenants
•
52% from Uber Technologies, Inc., Stripe, Inc., and Pinterest, Inc.
•
9% from all other technology tenants

 
16

 
 
 
q318logo1.jpg
Class A Properties in AAA Locations
September 30, 2018
 
 


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

Class A Properties in
AAA Locations
 
AAA Locations
 
 
 
 
q318realestate4s.jpg
 
 
 
 
 
 
 
 
77%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
of ARE’s
 
Annual Rental Revenue(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of ARE’s Annual Rental Revenue(1)








(1)
Represents annual rental revenue in effect as of September 30, 2018.

 
17

 
 
 
q318logo1.jpg
Occupancy
September 30, 2018
 
 



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

Solid Historical Occupancy(1)
 
Occupancy across Key Locations
 
 
 
 
q318occupancy4s.jpg
 
 
 
 
 
 
 
 
96%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over 10 Years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 








(1)
Average occupancy of operating properties in North America as of each December 31 for the last 10 years and as of September 30, 2018.


 
18

 
 
Financial and Asset Base Highlights
q318logo1.jpg
September 30, 2018
(Dollars in thousands, except per share amounts)
 
 

 
 
Three Months Ended (unless stated otherwise)
 
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Selected financial data from consolidated financial statements and related information
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA – quarter annualized
 
$
957,008

 
$
911,284

 
$
914,444

 
$
817,392

 
$
773,828

Adjusted EBITDA – trailing 12 months
 
$
900,032

 
$
854,237

 
$
815,178

 
$
767,508

 
$
728,869

Adjusted EBITDA margins
 
69%

 
69%

 
69%

 
68%

 
68%

Operating margins
 
71%

 
72%

 
71%

 
71%

 
71%

 
 
 
 
 
 
 
 
 
 
 
Net debt at end of period
 
$
5,483,132

 
$
5,326,039

 
$
4,979,254

 
$
4,516,672

 
$
4,698,568

Net debt to Adjusted EBITDA – quarter annualized
 
5.7x

 
5.8x

 
5.4x

 
5.5x

 
6.1x

Net debt to Adjusted EBITDA – trailing 12 months
 
6.1x

 
6.2x

 
6.1x

 
5.9x

 
6.4x

Net debt and preferred stock to Adjusted EBITDA – quarter annualized
 
5.8x

 
5.9x

 
5.5x

 
5.6x

 
6.2x

Net debt and preferred stock to Adjusted EBITDA – trailing 12 months
 
6.2x

 
6.3x

 
6.2x

 
6.0x

 
6.5x

 
 
 
 
 
 
 
 
 
 
 
Fixed-charge coverage ratio – quarter annualized
 
4.1x

 
4.3x

 
4.6x

 
4.2x

 
4.1x

Fixed-charge coverage ratio – trailing 12 months
 
4.3x

 
4.3x

 
4.3x

 
4.1x

 
4.0x

Unencumbered net operating income as a percentage of total net operating income
 
88%

 
88%

 
87%

 
86%

 
81%

 
 
 
 
 
 
 
 
 
 
 
Closing stock price at end of period
 
$
125.79

 
$
126.17

 
$
124.89

 
$
130.59

 
$
118.97

Common shares outstanding (in thousands) at end of period
 
105,804

 
103,346

 
100,696

 
99,784

 
94,325

Total equity capitalization at end of period
 
$
13,412,222

 
$
13,142,725

 
$
12,682,876

 
$
13,140,843

 
$
11,328,163

Total market capitalization at end of period
 
$
19,096,226

 
$
18,756,830

 
$
17,893,674

 
$
17,905,650

 
$
16,145,203

 
 
 
 
 
 
 
 
 
 
 
Dividend per share – quarter/annualized
 
$0.93/$3.72

 
$0.93/$3.72

 
$0.90/$3.60

 
$0.90/$3.60

 
$0.86/$3.44

Dividend payout ratio for the quarter
 
57%

 
57%

 
56%

 
61%

 
58%

Dividend yield – annualized
 
3.0%

 
2.9%

 
2.9%

 
2.8%

 
2.9%

 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses as a percentage of net operating income – trailing 12 months
 
9.5%

 
9.4%

 
9.3%

 
9.3%

 
9.6%

 
 
 
 
 
 
 
 
 
 
 
Capitalized interest
 
$
17,431

 
$
15,527

 
$
13,360

 
$
12,897

 
$
17,092

Weighted-average interest rate for capitalization of interest during the period
 
4.06%

 
3.92%

 
3.91%

 
3.89%

 
3.96%

 
 
 
 
 
 
 
 
 
 
 
 

 
19

 
 
Financial and Asset Base Highlights (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands, except annual rental revenue per occupied RSF amounts)
 
 

 
 
Three Months Ended (unless stated otherwise)
 
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Amounts included in funds from operations and non-revenue-enhancing capital expenditures
 
 
 
 
 
 
 
 
 
 
Straight-line rent revenue
 
$
20,070

 
$
23,259

 
$
32,631

 
$
33,281

 
$
20,865

Amortization of acquired below-market leases
 
$
5,220

 
$
5,198

 
$
6,170

 
$
4,147

 
$
4,545

Straight-line rent expense on ground leases
 
$
272

 
$
252

 
$
240

 
$
205

 
$
206

Stock compensation expense
 
$
9,986

 
$
7,975

 
$
7,248

 
$
6,961

 
$
7,893

Amortization of loan fees
 
$
2,734

 
$
2,593

 
$
2,543

 
$
2,571

 
$
2,840

Amortization of debt premiums
 
$
614

 
$
606

 
$
575

 
$
639

 
$
652

Non-revenue-enhancing capital expenditures:
 
 
 
 
 
 
 
 
 
 
Building improvements
 
$
3,032

 
$
2,827

 
$
2,625

 
$
2,469

 
$
2,453

Tenant improvements and leasing commissions
 
$
17,748

(1) 
$
10,686

 
$
2,836

 
$
9,578

 
$
9,976

 
 
 
 
 
 
 
 
 
 
 
Operating statistics and related information (at end of period)
 
 
 
 
 
 
 
 
 
 
Number of properties – North America
 
235

 
234

 
222

 
213

 
206

RSF (including development and redevelopment projects under construction) – North America
 
24,196,505

 
24,007,981

 
23,066,089

 
21,981,133

 
20,642,042

Total square feet – North America
 
32,186,813

 
31,976,194

 
30,240,017

 
29,563,221

 
28,583,747

Annual rental revenue per occupied RSF – North America
 
$
48.36

 
$
48.22

 
$
48.09

 
$
48.01

 
$
47.19

Occupancy of operating properties – North America
 
97.3%

 
97.1%

 
96.6%

 
96.8%

 
96.1%

Occupancy of operating and redevelopment properties – North America
 
94.6%

 
95.0%

 
94.3%

 
94.7%

 
93.9%

Weighted average remaining lease term (in years)
 
8.6

 
8.6

 
8.7

 
8.9

 
8.8

 
 
 
 
 
 
 
 
 
 
 
Total leasing activity – RSF
 
696,468

 
985,996

 
1,481,164

 
1,379,699

 
786,925

Lease renewals and re-leasing of space – change in average new rental rates over expiring rates:
 
 
 
 
 
 
 
 
 
 
Rental rate increases
 
35.4%


24.0%

 
16.3%

 
24.8%

 
24.2%

Rental rate increases (cash basis)
 
16.9%

 
12.8%

 
19.0%

 
10.4%

 
10.0%

RSF (included in total leasing activity above)
 
475,863

 
727,265

 
234,548

 
593,622

 
448,472

 
 
 
 
 
 
 
 
 
 
 
Same property – percentage change over comparable quarter from prior year:
 
 
 
 
 
 
 
 
 
 
Net operating income increase
 
3.4%

 
4.1%

 
4.0%

 
4.5%

 
2.2%

Net operating income increase (cash basis)
 
8.9%

 
6.3%

 
14.6%

 
12.5%

 
7.8%

 
 
 
 
 
 
 
 
 
 
 
 

(1)
See footnote 3 on page 23 of this Supplemental Information for additional information.

 
20

 
 
 
q318logo1.jpg
Key Operating Metrics
September 30, 2018
 
 

Favorable Lease Structure(1)
 
Same Property Net Operating Income Growth
 
 
 
q318sameprop4sa.jpg
q318sameprop4sb.jpg
 
Stable cash flows
 
 
 
 
Percentage of triple
net leases
 
97%
 
 
Increasing cash flows
 
 
 
 
Percentage of leases containing
annual rent escalations
94%
 
 
Lower capex burden
 
 
 
 
Percentage of leases providing for the
recapture of capital expenditures
95%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Margins(2)
 
Rental Rate Growth:
Renewed/Re-Leased Space
 
 
 
 
 
 
 
 
 
q318rentalrate4sa.jpg
q318rentalrate4sb.jpg
 
Adjusted EBITDA
 
 
 
Operating
 
 
69%
 
 
 
71%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Percentages calculated based on RSF as of September 30, 2018.
(2)
Represents percentages for the three months ended September 30, 2018.


 
21

 
 
Same Property Performance
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

Same Property Financial Data
 
3Q18
 
YTD 3Q18
 
Same Property Statistical Data
 
3Q18
 
YTD 3Q18
Percentage change over comparable period from prior year:
 
 
 
 
 
Number of same properties
 
188
 
185
Net operating income increase
 
3.4%
 
3.8%
 
Rentable square feet
 
17,641,401
 
17,221,297
Net operating income increase (cash basis)
 
8.9%
 
9.9%
 
Occupancy – current-period average
 
96.7%
 
96.4%
Operating margin
 
71%
 
71%
 
Occupancy – same-period prior-year average
 
95.9%
 
96.1%
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
$ Change
 
% Change
 
2018
 
2017
 
$ Change
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
$
209,030

 
$
202,168

 
$
6,862

 
3.4
%
 
$
610,325

 
$
587,913

 
$
22,412

 
3.8
%
 
Non-same properties
 
46,466

 
13,853

 
32,613

 
235.4

 
140,291

 
47,243

 
93,048

 
197.0

 
Total rental
 
255,496

 
216,021

 
39,475

 
18.3

 
750,616

 
635,156

 
115,460

 
18.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
70,790

 
64,271

 
6,519

 
10.1

 
198,694

 
182,146

 
16,548

 
9.1

 
Non-same properties
 
10,261

 
2,787

 
7,474

 
268.2

 
27,686

 
6,728

 
20,958

 
311.5

 
Total tenant recoveries
 
81,051

 
67,058

 
13,993

 
20.9

 
226,380

 
188,874

 
37,506

 
19.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
66

 
43

 
23

 
53.5

 
199

 
142

 
57

 
40.1

 
Non-same properties
 
5,210

 
2,248

 
2,962

 
131.8

 
9,801

 
5,134

 
4,667

 
90.9

 
Total other income
 
5,276

 
2,291

 
2,985

 
130.3

 
10,000

 
5,276

 
4,724

 
89.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
279,886

 
266,482

 
13,404

 
5.0

 
809,218

 
770,201

 
39,017

 
5.1

 
Non-same properties
 
61,937

 
18,888

 
43,049

 
227.9

 
177,778

 
59,105

 
118,673

 
200.8

 
Total revenues
 
341,823

 
285,370

 
56,453

 
19.8

 
986,996

 
829,306

 
157,690

 
19.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
82,637

 
75,803

 
6,834

 
9.0

 
233,903

 
216,035

 
17,868

 
8.3

 
Non-same properties
 
17,122

 
7,666

 
9,456

 
123.3

 
49,535

 
21,501

 
28,034

 
130.4

 
Total rental operations
 
99,759

 
83,469

 
16,290

 
19.5

 
283,438

 
237,536

 
45,902

 
19.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same properties
 
197,249

 
190,679

 
6,570

 
3.4

 
575,315

 
554,166

 
21,149

 
3.8

 
Non-same properties
 
44,815

 
11,222

 
33,593

 
299.3

 
128,243

 
37,604

 
90,639

 
241.0

 
Net operating income
 
$
242,064

 
$
201,901

 
$
40,163

 
19.9
%
 
$
703,558

 
$
591,770

 
$
111,788

 
18.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net operating income – same properties
 
$
197,249

 
$
190,679

 
$
6,570

 
3.4
%
 
$
575,315

 
$
554,166

 
$
21,149

 
3.8
%
 
Straight-line rent revenue
 
(10,555
)
 
(17,775
)
 
7,220

 
(40.6
)
 
(38,485
)
 
(62,319
)
 
23,834

 
(38.2
)
 
Amortization of acquired below-market leases
 
(3,269
)
 
(4,403
)
 
1,134

 
(25.8
)
 
(7,339
)
 
(9,860
)
 
2,521

 
(25.6
)
 
Net operating income – same properties (cash basis)
 
$
183,425

 
$
168,501

 
$
14,924

 
8.9
%
 
$
529,491

 
$
481,987

 
$
47,504

 
9.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

See definition for “Same Property Comparisons” on page 52 of this Supplemental Information for a reconciliation of same properties to total properties.


 
22

 
 
Leasing Activity
q318logo1.jpg
September 30, 2018
(Dollars per RSF)
 
 

 
 
Three Months Ended
 
Nine Months Ended
 
Year Ended
 
 
September 30, 2018
 
September 30, 2018
 
December 31, 2017
 
 
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
 
35.4%

 
16.9%

(2) 
26.9%

 
15.0%

(2) 
25.1%

 
12.7%

New rates
 
$
69.64

 
$
64.71

 
$
55.97

 
$
53.29

 
$
51.05

 
$
47.99

Expiring rates
 
$
51.44

 
$
55.36

 
$
44.12

 
$
46.32

 
$
40.80

 
$
42.60

Rentable square footage
 
475,863

 
 
 
1,437,676

 
 
 
2,525,099

 
 
Tenant improvements/leasing commissions
 
$
33.53

(3) 
 
 
$
21.75

 
 
 
$
18.74

 
 
Weighted-average lease term
 
6.9 years

 
 
 
5.8 years

 
 
 
6.2 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed/redeveloped/previously vacant space leased
 
 
 
 
 
 
 
 
 
 
 
 
New rates
 
$
55.42

 
$
53.12

 
$
66.49

 
$
56.23

 
$
47.56

 
$
42.93

Rentable square footage
 
220,605

 
 
 
1,725,952

 
 
 
2,044,083

 
 
Tenant improvements/leasing commissions
 
$
15.67


 
 
$
13.76

 
 
 
$
9.83

 
 
Weighted-average lease term
 
7.0 years

 
 
 
12.8 years

 
 
 
10.1 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasing activity summary (totals):
 
 
 
 
 
 
 
 
 
 
 
 
New rates
 
$
65.14

 
$
61.04

 
$
61.71

 
$
54.90

 
$
49.49

 
$
45.72

Rentable square footage
 
696,468

 
 
 
3,163,628

(4) 
 
 
4,569,182

 
 
Tenant improvements/leasing commissions
 
$
27.88

 
 
 
$
17.39

 
 
 
$
14.75

 
 
Weighted-average lease term
 
7.0 years

 
 
 
9.6 years

 
 
 
7.9 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease expirations:(1)
 
 
 
 
 
 
 
 
 
 
 
 
Expiring rates
 
$
46.82

 
$
50.90

 
$
43.01

 
$
45.65

 
$
39.99

 
$
41.71

Rentable square footage
 
745,839

 
 
 
2,072,452

 
 
 
2,919,259

 
 


Leasing activity includes 100% of results for each property in which we have an investment in North America.

(1)
Excludes month-to-month leases aggregating 40,020 RSF and 37,006 RSF as of September 30, 2018, and December 31, 2017, respectively.
(2)
Includes rental rate increases related to the early re-leasing and re-tenanting of space subject to significantly below-market leases at our Alexandria Center® at One Kendall Square campus in our Cambridge submarket. Since our acquisition of the campus in the fourth quarter of 2016, we have re-leased and renewed approximately 291,000 RSF of below-market space, or four times the volume we initially forecasted to be executed through the third quarter of 2018, at rental rate (cash basis) increases of approximately 27%.
(3)
Includes $8.4 million of tenant improvements related to the 12-year lease renewal of 129,424 RSF with Alnylam Pharmaceuticals, Inc. at 300 Third Street in our Cambridge submarket. The increase in rental rates, net of tenant improvements and leasing commissions per RSF, on this renewal was 77%. Excluding this lease, new tenant improvements and leasing commissions for renewed/re-leased space was $16.25 per RSF during the third quarter of 2018.
(4)
During the nine months ended September 30, 2018, we granted tenant concessions/free rent averaging 1.9 months with respect to the 3,163,628 RSF leased. Approximately 61% of the leases executed during the nine months ended September 30, 2018, did not include concessions for free rent.

 
23

 
 
 
q318logo1.jpg
Contractual Lease Expirations
September 30, 2018
 
 

Year
 
Number of Leases
 
RSF
 
Percentage of
Occupied RSF
 
Annual Rental Revenue
(per RSF)(1)
 
Percentage of Total
Annual Rental Revenue
 
 
2018
(2)
 
 
22

 
 
 
267,899

 
 
 
1.3
%
 
 
 
$
44.66

 
 
 
1.2
%
 
 
 
2019
 
 
 
94

 
 
 
1,299,961

 
 
 
6.2
%
 
 
 
$
40.99

 
 
 
5.4
%
 
 
 
2020
 
 
 
116

 
 
 
1,853,802

 
 
 
8.8
%
 
 
 
$
37.69

 
 
 
7.0
%
 
 
 
2021
 
 
 
98

 
 
 
1,562,885

 
 
 
7.5
%
 
 
 
$
39.65

 
 
 
6.2
%
 
 
 
2022
 
 
 
91

 
 
 
1,596,193

 
 
 
7.6
%
 
 
 
$
44.34

 
 
 
7.1
%
 
 
 
2023
 
 
 
79

 
 
 
2,178,296

 
 
 
10.4
%
 
 
 
$
43.45

 
 
 
9.5
%
 
 
 
2024
 
 
 
45

 
 
 
1,673,364

 
 
 
8.0
%
 
 
 
$
48.08

 
 
 
8.1
%
 
 
 
2025
 
 
 
32

 
 
 
1,469,393

 
 
 
7.0
%
 
 
 
$
46.49

 
 
 
6.9
%
 
 
 
2026
 
 
 
23

 
 
 
860,002

 
 
 
4.1
%
 
 
 
$
43.05

 
 
 
3.7
%
 
 
 
2027
 
 
 
24

 
 
 
1,928,376

 
 
 
9.2
%
 
 
 
$
43.84

 
 
 
8.5
%
 
 
Thereafter
 
 
57

 
 
 
6,277,695

 
 
 
29.9
%
 
 
 
$
57.83

 
 
 
36.4
%
 
 

Market
 
2018 Contractual Lease Expirations (in RSF)
 
Annual Rental Revenue
(per RSF)(1)
 
2019 Contractual Lease Expirations (in RSF)

Annual Rental Revenue
(per RSF)(1)
 
 
Leased
 
Negotiating/
Anticipating
 
Targeted for Redevelopment
 
Remaining
Expiring Leases
 
Total(2)
 
 
Leased

Negotiating/
Anticipating

Targeted for Redevelopment

Remaining
Expiring Leases(3)
 
Total

 
 
 
 
 
 
 
 



 

 
Greater Boston
 
61,244

 
3,404

 
—

 
 
—

 
 
64,648

 
$
66.10

 
99,744


9,071


—

 

222,773

 
 
331,588


$
51.11

 
San Francisco
 
3,994

 
9,122

 
—

 
 
—

 
 
13,116

 
51.10

 
19,415


12,778


—

 

175,936

 
 
208,129


42.08

 
New York City
 
3,573

 
—

 
—

 
 
11,168

 
 
14,741

 
N/A

 
—


—


—

 

4,467


 
4,467


N/A

 
San Diego
 
—

 
14,685

 
—

 
 
57,177

 

71,862

 
28.29

 
90,193


—


—

 
 
190,039

 
 
280,232


32.40

 
Seattle
 
—

 
—

 
—

 
 
7,770

 
 
7,770

 
N/A

 
106,003


75,545


—

 

60,689


 
242,237


43.96

 
Maryland
 
—

 
—

 
—

 
 
11,326

 
 
11,326

 
19.51

 
—


47,180


—

 

72,606


 
119,786


29.30

 
Research Triangle Park
 
—

 
9,307

 
—

 
 
16,027

 
 
25,334

 
19.36

 
—


2,923


—

 

46,913


 
49,836


22.13

 
Canada
 
31,006

 
8,889

 
—

 
 
15,070

 
 
54,965

 
19.61

 
—

 
—

 
—

 
 
—

 
 
—

 
—

 
Non-cluster markets
 
—

 
—

 
—

 
 
4,137

 
 
4,137

 
14.86

 
3,508


6,178


—

 

54,000


 
63,686


33.31

 
Total
 
99,817

 
45,407

 
—

 
 
122,675

 
 
267,899

 
$
44.66

 
318,863


153,675


—

 

827,423


 
1,299,961


$
40.99

 
Percentage of expiring leases
 
37
%
 
17
%
 
—
%
 
 
46
%
 
 
100
%
 
 
 
25
%
 
12
%
 
—
%
 
 
63
%

 
100
%


 
 

(1)
Represents amounts in effect as of September 30, 2018.
(2)
Excludes month-to-month leases aggregating 40,020 RSF as of September 30, 2018.
(3)
Includes 116,556 RSF expiring in June 2019 at 3545 Cray Court in our Torrey Pines submarket, which is under evaluation for options to renovate as a Class A office/laboratory building. The next largest contractual lease expiration in 2019 is 50,400 RSF, which is under evaluation for renewal.

 
24

 
 
Top 20 Tenants
q318logo1.jpg
September 30, 2018
(Dollars in thousands, except market cap amounts)
 
 

79% of Top 20 Annual Rental Revenue from Investment-Grade
or Publicly Traded Large Cap Tenants(1) 

 
 
Tenant
 
Remaining Lease Term in Years(1)
 
Aggregate
RSF
 
Annual Rental Revenue(1)
 
Percentage of Aggregate Annual Rental Revenue(1)
 
Investment-Grade
Credit Ratings
 
Average Market Cap(2)
(in billions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Moody’s
 
S&P
 
 
1
 
Illumina, Inc.
 
 
11.9

 
 
 
891,495

 
 
 
$
34,826

 
 
3.5
%
 
—
 
BBB
 
$
38.1

 
2
 
Bristol-Myers Squibb Company
 
 
9.3

 
 
 
475,661

 
 
 
30,861

 
 
3.1

 
A2
 
A+
 
$
98.1

 
3
 
Takeda Pharmaceutical Company Ltd.
 
 
11.5

 
 
 
386,111

 
 
 
30,614

 
 
3.0

 
A2
 
A-
 
$
38.9

 
4
 
Sanofi
 
 
9.4

 
 
 
494,693

 
 
 
30,324

 
 
3.0

 
A1
 
AA
 
$
106.7

 
5
 
Eli Lilly and Company
 
 
11.1

 
 
 
467,521

 
 
 
29,203

 
 
2.9

 
A2
 
AA-
 
$
94.8

 
6
 
Celgene Corporation
 
 
7.7

 
 
 
614,082

 
 
 
29,195

 
 
2.9

 
Baa2
 
BBB+
 
$
71.5

 
7
 
Novartis AG
 
 
8.4

 
 
 
361,180

 
 
 
27,732

 
 
2.8

 
A1
 
AA-
 
$
212.9

 
8
 
Uber Technologies, Inc.
 
 
74.2

(3) 
 
 
422,980

 
 
 
22,185

 
 
2.2

 
—
 
—
 
N/A

 
9
 
New York University
 
 
11.9

 
 
 
209,224

 
 
 
20,718

 
 
2.1

 
Aa2
 
AA-
 
 N/A

 
10
 
bluebird bio, Inc.
 
 
8.3

 
 
 
262,261

 
 
 
20,104

 
 
2.0

 
—
 
—
 
$
8.6

 
11
 
Moderna Therapeutics, Inc.
 
 
10.1

 
 
 
356,975

 
 
 
19,857

 
 
2.0

 
—
 
—
 
 N/A

 
12
 
Roche
 
 
5.2

 
 
 
357,928

 
 
 
19,023

 
 
1.9

 
Aa3
 
AA
 
$
204.5

 
13
 
Stripe, Inc.
 
 
9.0

 
 
 
295,333

 
 
 
17,736

 
 
1.8

 
—
 
—
 
 N/A

 
14
 
Pfizer Inc.
 
 
6.1

 
 
 
416,143

 
 
 
17,353

 
 
1.7

 
A1
 
AA
 
$
219.9

 
15
 
Amgen Inc.
 
 
5.5

 
 
 
407,369

 
 
 
16,838

 
 
1.7

 
Baa1
 
A
 
$
126.9

 
16
 
Massachusetts Institute of Technology
 
 
6.7

 
 
 
256,126

 
 
 
16,729

 
 
1.7

 
Aaa
 
AAA
 
 N/A

 
17
 
Facebook, Inc.
 
 
11.5

 
 
 
382,883

 
 
 
15,434

 
 
1.5

 
—
 
—
 
$
520.3

 
18
 
United States Government
 
 
6.9

 
 
 
264,358

 
 
 
15,089

 
 
1.5

 
Aaa
 
AA+
 
N/A

 
19
 
FibroGen, Inc.
 
 
5.1

 
 
 
234,249

 
 
 
14,198

 
 
1.4

 
—
 
—
 
$
4.5

 
20
 
Biogen Inc.
 
 
10.0

 
 
 
305,212

 
 
 
13,278

 
 
1.3

 
Baa1
 
A-
 
$
65.7

 
 
 
Total/weighted average
 
 
12.3

(3) 
 
 
7,861,784

 
 
 
$
441,297

 
 
44.0
%
 
 
 
 
 
 
 

(1)
Based on aggregate annual rental revenue in effect as of September 30, 2018. See “Definitions and Reconciliations” for our methodologies on annual rental revenue for unconsolidated properties for additional information.
(2)
Average daily market capitalization for the 12-months ended September 30, 2018. See “Definitions and Reconciliations” for additional information.
(3)
Represents a ground lease with Uber Technologies, Inc. at 1455 and 1515 Third Street in our Mission Bay/SoMa submarket. Excluding the ground lease, the weighted-average remaining lease term for our top 20 tenants was 9.0 years as of September 30, 2018.

 
25

 
 
Summary of Properties and Occupancy
q318logo1.jpg
September 30, 2018
(Dollars in thousands, except per RSF amounts)
 
 

Summary of properties
Market
 
RSF
 
Number of Properties
 
Annual Rental Revenue
 
 
Operating
 
Development
 
Redevelopment
 
Total
 
% of Total
 
 
Total
 
% of Total
 
Per RSF
 
Greater Boston
 
6,227,321

 
164,000

 
31,858

 
6,423,179

 
27
%
 
54

 
$
381,000

 
38
%
 
$
62.18

 
San Francisco
 
4,517,876

 
1,627,088

 
190,947

 
6,335,911

 
26

 
44

 
221,029

 
22

 
50.81

 
New York City
 
1,077,621

 
—

 
—

 
1,077,621

 
4

 
3

 
75,875

 
8

 
72.42

 
San Diego
 
4,344,153

 
—

 
163,648

 
4,507,801

 
19

 
56

 
159,091

 
15

 
38.89

 
Seattle
 
1,235,055

 
198,000

 
—

 
1,433,055

 
6

 
13

 
58,752

 
6

 
48.72

 
Maryland
 
2,462,116

 
—

 
103,225

 
2,565,341

 
11

 
37

 
66,375

 
6

 
27.85

 
Research Triangle Park
 
1,088,869

 
—

 
129,857

 
1,218,726

 
5

 
16

 
27,672

 
3

 
26.32

 
Canada
 
256,967

 
—

 
—

 
256,967

 
1

 
3

 
6,717

 
1

 
26.52

 
Non-cluster markets
 
323,030

 
—

 
—

 
323,030

 
1

 
8

 
8,188

 
1

 
30.83

 
Properties held for sale
 
54,874

 
—

 
—

 
54,874

 
—

 
1

 
997

 
—

 
—

 
North America
 
21,587,882

 
1,989,088

 
619,535

 
24,196,505

 
100
%
 
235

 
$
1,005,696

 
100
%
 
$
48.36

 
 
 
 
 
2,608,623
 
 
 
 
 
 
 
 
 
 
 
 
 


Summary of occupancy
 
 
Operating Properties
 
Operating and Redevelopment Properties
Market
 
9/30/18
 
6/30/18
 
9/30/17
 
9/30/18
 
6/30/18
 
9/30/17
Greater Boston
 
98.4
%
 
97.2
%
 
95.9
%
 
97.9
%
 
96.7
%
 
95.0
%
San Francisco
 
100.0

 
99.8

 
100.0

 
95.9

 
98.8

 
100.0

New York City
 
97.2

 
100.0

 
99.8

 
97.2

 
100.0

 
99.8

San Diego
 
94.2

(1) 
95.8

 
92.4

 
90.8

(1) 
92.3

 
88.6

Seattle
 
97.6

 
97.2

 
98.2

 
97.6

 
97.2

 
98.2

Maryland
 
97.2

 
95.7

 
93.6

 
93.3

 
91.9

 
91.6

Research Triangle Park
 
96.6

 
96.5

 
98.1

 
86.3

 
85.3

 
84.0

Subtotal
 
97.5

 
97.4

 
96.1

 
94.7

 
95.2

 
93.9

Canada
 
98.6

 
98.6

 
99.2

 
98.6

 
98.6

 
99.2

Non-cluster markets
 
82.2

 
77.9

 
88.6

 
82.2

 
77.9

 
88.6

North America
 
97.3
%
 
97.1
%
 
96.1
%
 
94.6
%
 
95.0
%
 
93.9
%

See “Definitions and Reconciliations” in this Supplemental Information for additional information.

(1)
The decline in occupancy relates primarily to the vacancy in the third quarter of 2018 of 44,034 RSF at 4110 Campus Point Court, a property we recently acquired in the fourth quarter of 2017 in our University Town Center submarket. We are reviewing various options to renovate this space.

 
26

 
 
Property Listing
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

Market / Submarket / Address
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
Occupancy Percentage 
 
 
 
 
 
 
 
 
Operating
 
Operating and Redevelopment
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
 
Greater Boston
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cambridge/Inner Suburbs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Center® at Kendall Square
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50, 60, 75/125, and 100 Binney Street, 161 First Street, 215 First Street, 150 Second Street, 300 Third Street, and 11 Hurley Street
 
2,060,275

 
—

 
—

 
2,060,275

 
9
 
$
149,052

 
98.5
%
 
 
98.5
%
 
 
 
225 Binney Street (consolidated joint venture – 30% ownership)
 
305,212

 
—

 
—

 
305,212

 
1
 
13,278

 
100.0

 
 
100.0

 
 
 
Alexandria Technology Square®
 
1,181,635

 
—

 
—

 
1,181,635

 
7
 
87,989

 
99.8

 
 
99.8

 
 
 
100, 200, 300, 400, 500, 600, and 700 Technology Square

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Center® at One Kendall Square
 
649,705

 
164,000

 
—

 
813,705

 
10
 
48,350

 
92.9

`
 
92.9

 
 
 
One Kendall Square – Buildings 100, 200, 300, 400, 500, 600/700, 1400, 1800, 2000, and 399 Binney Street
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
480 and 500 Arsenal Street
 
234,260

 
—

 
—

 
234,260

 
2
 
10,532

 
100.0

 
 
100.0

 
 
 
640 Memorial Drive
 
225,504

 
—

 
—

 
225,504

 
1
 
13,771

 
100.0

 
 
100.0

 
 
 
780 and 790 Memorial Drive
 
99,658

 
—

 
—

 
99,658

 
2
 
7,751

 
100.0

 
 
100.0

 
 
 
167 Sidney Street and 99 Erie Street
 
54,549

 
—

 
—

 
54,549

 
2
 
3,869

 
100.0

 
 
100.0

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

 
—

 
—

 
25,309

 
1
 
620

 
100.0

 
 
100.0

 
 
 
Cambridge/Inner Suburbs
 
4,836,107

 
164,000

 
—

 
5,000,107

 
35
 
335,212

 
98.3

 
 
98.3

 
 
Route 128
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Park at 128
 
343,882

 
—

 
—

 
343,882

 
8
 
10,478

 
95.6

 
 
95.6

 
 
 
3 and 6/8 Preston Court, 29, 35, and 44 Hartwell Avenue,
35 and 45/47 Wiggins Avenue, and 60 Westview Street
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
225, 266, and 275 Second Avenue
 
285,759

 
—

 
31,858

 
317,617

 
3
 
12,328

 
100.0

 
 
90.0

 
 
 
100 Tech Drive
 
200,431

 
—

 
—

 
200,431

 
1
 
8,455

 
100.0

 
 
100.0

 
 
 
19 Presidential Way
 
144,892

 
—

 
—

 
144,892

 
1
 
5,124

 
96.8

 
 
96.8

 
 
 
100 Beaver Street
 
82,330

 
—

 
—

 
82,330

 
1
 
3,279

 
100.0

 
 
100.0

 
 
 
285 Bear Hill Road
 
26,270

 
—

 
—

 
26,270

 
1
 
1,167

 
100.0

 
 
100.0

 
 
 
Route 128
 
1,083,564

 
—

 
31,858

 
1,115,422

 
15
 
40,831

 
98.2

 
 
95.4

 
 
Route 495
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
111 and 130 Forbes Boulevard
 
155,846

 
—

 
—

 
155,846

 
2
 
1,543

 
100.0

 
 
100.0

 
 
 
20 Walkup Drive
 
91,045

 
—

 
—

 
91,045

 
1
 
649

 
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
 
4,957

 
100.0

 
 
100.0

 
 
 
Greater Boston
 
6,227,321

 
164,000

 
31,858

 
6,423,179

 
54
 
$
381,000

 
98.4
%
 
 
97.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
27

 
 
Property Listing (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

Market / Submarket / Address
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
Occupancy Percentage 
 
 
 
 
 
 
 
 
Operating
 
Operating and Redevelopment
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
 
San Francisco
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mission Bay/SoMa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1655 and 1725 Third Street (unconsolidated joint venture – 10% ownership)
 
—

 
593,765

 
—

 
593,765

 
2
 
$
—

 
N/A

 
 
N/A

 
 
 
409 and 499 Illinois Street (consolidated joint venture – 60% ownership)
 
455,069

 
—

 
—

 
455,069

 
2
 
28,672

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

 
—

 
—

 
422,980

 
2
 
22,185

 
100.0

 
 
100.0

 
 
 
510 Townsend Street
 
295,333

 
—

 
—

 
295,333

 
1
 
17,736

 
100.0

 
 
100.0

 
 
 
88 Bluxome Street
 
232,470

 
—

 
—

 
232,470

 
1
 
3,813

 
100.0

 
 
100.0

 
 
 
455 Mission Bay Boulevard South
 
210,398

 
—

 
—

 
210,398

 
1
 
13,132

 
100.0

 
 
100.0

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

 
—

 
—

 
158,267

 
1
 
7,681

 
100.0

 
 
100.0

 
 
 
1700 Owens Street
 
157,340

 
—

 
—

 
157,340

 
1
 
11,104

 
99.8

 
 
99.8

 
 
 
505 Brannan Street (consolidated joint venture – 99.7% ownership)
 
148,146

 
—

 
—

 
148,146

 
1
 
12,099

 
100.0

 
 
100.0

 
 
 
Mission Bay/SoMa
 
2,080,003

 
593,765

 
—

 
2,673,768

 
12
 
116,422

 
100.0

 
 
100.0

 
 
South San Francisco
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
213, 249, 259, 269, and 279 East Grand Avenue
 
407,369

 
512,335

 
—

 
919,704

 
5
 
16,838

 
100.0

 
 
100.0

 
 
 
Alexandria Technology Center® – Gateway
 
492,066

 
—

 
142,400

 
634,466

 
7
 
23,211

 
100.0

 
 
77.6

 
 
 
600, 630, 650, 681, 701, 901, and 951 Gateway Boulevard
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
400 and 450 East Jamie Court
 
163,035

 
—

 
—

 
163,035

 
2
 
6,519

 
100.0

 
 
100.0

 
 
 
500 Forbes Boulevard
 
155,685

 
—

 
—

 
155,685

 
1
 
6,619

 
100.0

 
 
100.0

 
 
 
7000 Shoreline Court
 
136,395

 
—

 
—

 
136,395

 
1
 
5,653

 
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
 
3,813

 
100.0

 
 
100.0

 
 
 
South San Francisco
 
1,566,367

 
512,335

 
142,400

 
2,221,102

 
19
 
67,132

 
100.0

 
 
91.7

 
 
Greater Stanford
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
Menlo Gateway (unconsolidated joint venture)(1)
 
251,995

 
520,988

 
—

 
772,983

 
3
 
6,326

 
100.0

 
 
100.0

 
 
 
100 Independence Drive and 125 and 135 Constitution Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria PARC
 
148,951

 
—

 
48,547

 
197,498

 
4
 
8,285

 
100.0

 
 
75.4

 
 
 
2100, 2200, 2300, and 2400 Geng Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
960 Industrial Road
 
110,000

 
—

 
—

 
110,000

 
1
 
2,749

 
100.0

 
 
100.0

 
 
 
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

 
 
 
1450 Page Mill Road
 
77,634

 
—

 
—

 
77,634

 
1
 
8,009

 
100.0

 
 
100.0

 
 
 
3350 West Bayshore Road
 
60,000

 
—

 
—

 
60,000

 
1
 
2,211

 
100.0

 
 
100.0

 
 
 
2625/2627/2631 Hanover Street
 
32,074

 
—

 
—

 
32,074

 
1
 
1,753

 
100.0

 
 
100.0

 
 
 
Greater Stanford
 
871,506

 
520,988

 
48,547

 
1,441,041

 
13
 
37,475

 
100.0

 
 
94.7

 
 
 
San Francisco
 
4,517,876

 
1,627,088

 
190,947

 
6,335,911

 
44
 
221,029

 
100.0

 
 
95.9

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

 
—

 
—

 
727,674

 
2
 
61,869

 
95.9

 
 
95.9

 
 
 
430 and 450 East 29th Street
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
219 East 42nd Street
 
349,947

 
—

 
—

 
349,947

 
1
 
14,006

 
100.0

 
 
100.0

 
 
 
New York City
 
1,077,621

 
—

 
—

 
1,077,621

 
3
 
$
75,875

 
97.2
%
 
 
97.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
See page 41 of this Supplemental Information for our ownership percentage.

 
28

 
 
Property Listing (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

Market / Submarket / Address
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
Occupancy Percentage 
 
 
 
 
 
 
 
 
Operating
 
Operating and Redevelopment
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
 
San Diego
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Torrey Pines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Spectrum
 
336,461

 
—

 
—

 
336,461

 
3
 
$
17,193

 
100.0
%
 
 
100.0
%
 
 
 
3215 Merryfield Row and 3013 and 3033 Science Park Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Torrey Ridge
 
294,993

 
—

 
—

 
294,993

 
3
 
13,271

 
89.6

 
 
89.6

 
 
 
10578, 10614, and 10628 Science Center Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Sunrise
 
236,635

 
—

 
—

 
236,635

 
3
 
8,834

 
99.7

 
 
99.7

 
 
 
10931/10933 and 10975 North Torrey Pines Road,
3010 Science Park Road, and 10996 Torreyana Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Nautilus
 
223,751

 
—

 
—

 
223,751

 
4
 
9,214

 
88.9

 
 
88.9

 
 
 
3530 and 3550 John Hopkins Court and 3535 and 3565 General Atomics Court
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3545 Cray Court
 
116,556

 
—

 
—

 
116,556

 
1
 
4,827

 
100.0

 
 
100.0

 
 
 
11119 North Torrey Pines Road
 
72,506

 
—

 
—

 
72,506

 
1
 
3,409

 
100.0

 
 
100.0

 
 
 
Torrey Pines
 
1,280,902

 
—

 
—

 
1,280,902

 
15
 
56,748

 
95.6

 
 
95.6

 
 
University Town Center
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Campus Pointe by Alexandria (consolidated joint venture – 55% ownership)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10290 and 10300 Campus Point Drive and 4110 Campus Point Court
 
798,799

 
—

 
—

 
798,799

 
3
 
31,047

 
90.1

 
 
90.1

 
 
 
5200 Illumina Way
 
792,687

 
—

 
—

 
792,687

 
6
 
28,896

 
100.0

 
 
100.0

 
 
 
ARE Esplanade
 
241,963

 
—

 
—

 
241,963

 
4
 
10,036

 
100.0

 
 
100.0

 
 
 
4755, 4757, and 4767 Nexus Center Drive and 4796 Executive Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE Towne Centre
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9625 Towne Centre Drive (consolidated joint venture – 50.1% ownership)
 
—

 
—

 
163,648

 
163,648

 
1
 
—

 
N/A

 
 
—

 
 
 
9363, 9373, and 9393 Towne Centre Drive
 
140,398

 
—

 
—

 
140,398

 
3
 
1,721

 
69.4

 
 
69.4

 
 
 
University Town Center
 
1,973,847

 
—

 
163,648

 
2,137,495

 
17
 
71,700

 
93.8

 
 
86.6

 
 
Sorrento Mesa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summers Ridge Science Park
 
316,531

 
—

 
—

 
316,531

 
4
 
10,843

 
100.0

 
 
100.0

 
 
 
9965, 9975, 9985, and 9995 Summers Ridge Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5810/5820 and 6138/6150 Nancy Ridge Drive
 
138,970

 
—

 
—

 
138,970

 
2
 
3,950

 
100.0

 
 
100.0

 
 
 
10121 and 10151 Barnes Canyon Road 
 
102,392

 
—

 
—

 
102,392

 
2
 
2,691

 
100.0

 
 
100.0

 
 
 
ARE Portola
 
101,857

 
—

 
—

 
101,857

 
3
 
2,092

 
71.7

 
 
71.7

 
 
 
6175, 6225, and 6275 Nancy Ridge Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7330 Carroll Road
 
66,244

 
—

 
—

 
66,244

 
1
 
2,431

 
100.0

 
 
100.0

 
 
 
5871 Oberlin Drive
 
33,817

 
—

 
—

 
33,817

 
1
 
832

 
86.8

 
 
86.8

 
 
 
Sorrento Mesa
 
759,811

 
—

 
—

 
759,811

 
13
 
22,839

 
95.6

 
 
95.6

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

 
—

 
—

 
121,655

 
6
 
2,272

 
74.6

 
 
74.6

 
 
 
3985, 4025, 4031, and 4045 Sorrento Valley Boulevard
 
98,158

 
—

 
—

 
98,158

 
4
 
2,560

 
88.9

 
 
88.9

 
 
 
Sorrento Valley
 
219,813

 
—

 
—

 
219,813

 
10
 
4,832

 
81.0

 
 
81.0

 
 
I-15 Corridor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13112 Evening Creek Drive
 
109,780

 
—

 
—

 
109,780

 
1
 
2,972

 
100.0

 
 
100.0

 
 
 
San Diego
 
4,344,153

 
—

 
163,648

 
4,507,801

 
56
 
$
159,091

 
94.2
%
 
 
90.8
%
 
 
 

 
29

 
 
Property Listing (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

Market / Submarket / Address
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
Occupancy Percentage 
 
 
 
 
 
 
 
 
Operating
 
Operating and Redevelopment
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
 
Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lake Union
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
400 Dexter Avenue North
 
290,111

 
—

 
—

 
290,111

 
1
 
$
15,068

 
100.0
%
 
 
100.0
%
 
 
 
1201 and 1208 Eastlake Avenue East
 
203,369

 
—

 
—

 
203,369

 
2
 
8,748

 
100.0

 
 
100.0

 
 
 
188 East Blaine Street(1)
 
—

 
198,000

 
—

 
198,000

 
1
 
—

 
N/A

 
 
N/A

 
 
 
2301 5th Avenue
 
197,135

 
—

 
—

 
197,135

 
1
 
9,754

 
97.4

 
 
97.4

 
 
 
1616 Eastlake Avenue East
 
168,708

 
—

 
—

 
168,708

 
1
 
8,276

 
93.7

 
 
93.7

 
 
 
1551 Eastlake Avenue East
 
117,482

 
—

 
—

 
117,482

 
1
 
4,837

 
100.0

 
 
100.0

 
 
 
199 East Blaine Street
 
115,084

 
—

 
—

 
115,084

 
1
 
6,189

 
100.0

 
 
100.0

 
 
 
219 Terry Avenue North
 
30,705

 
—

 
—

 
30,705

 
1
 
1,843

 
100.0

 
 
100.0

 
 
 
1600 Fairview Avenue East
 
27,991

 
—

 
—

 
27,991

 
1
 
1,245

 
100.0

 
 
100.0

 
 
 
Lake Union
 
1,150,585

 
198,000

 
—

 
1,348,585

 
10
 
55,960

 
98.6

 
 
98.6

 
 
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
 
953

 
63.9

 
 
63.9

 
 
 
Elliott Bay
 
84,470

 
—

 
—

 
84,470

 
3
 
2,792

 
84.3

 
 
84.3

 
 
 
Seattle
 
1,235,055

 
198,000

 
—

 
1,433,055

 
13
 
58,752

 
97.6

 
 
97.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maryland
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rockville
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9800, 9900, and 9920 Medical Center Drive
 
341,169

 
—

 
45,039

 
386,208

 
6
 
13,229

 
100.0

 
 
88.3

 
 
 
9704, 9708, 9712, and 9714 Medical Center Drive
 
214,725

 
—

 
—

 
214,725

 
4
 
7,862

 
100.0

 
 
100.0

 
 
 
1330 Piccard Drive
 
131,511

 
—

 
—

 
131,511

 
1
 
3,562

 
100.0

 
 
100.0

 
 
 
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
 
2,260

 
100.0

 
 
100.0

 
 
 
1405 Research Boulevard
 
71,669

 
—

 
—

 
71,669

 
1
 
2,315

 
100.0

 
 
100.0

 
 
 
5 Research Place
 
63,852

 
—

 
—

 
63,852

 
1
 
2,407

 
100.0

 
 
100.0

 
 
 
9920 Belward Campus Drive
 
51,181

 
—

 
—

 
51,181

 
1
 
1,568

 
100.0

 
 
100.0

 
 
 
12301 Parklawn Drive
 
49,185

 
—

 
—

 
49,185

 
1
 
1,329

 
100.0

 
 
100.0

 
 
 
5 Research Court
 
49,160

 
—

 
—

 
49,160

 
1
 
—

 
—

 
 
—

 
 
 
Rockville
 
1,149,644

 
—

 
45,039

 
1,194,683

 
20
 
36,213

 
95.7

 
 
92.1

 
 
Gaithersburg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Center® – Gaithersburg I
 
377,585

 
—

 
—

 
377,585

 
4
 
9,411

 
100.0

 
 
100.0

 
 
 
9 West Watkins Mill Road and 910, 930, and 940 Clopper Road
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Center® – Gaithersburg II
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
708 Quince Orchard Road and 19, 20, 21, and 22 Firstfield Road
 
235,053

 
—

 
—

 
235,053

 
5
 
6,465

 
96.1

 
 
96.1

 
 
 
704 Quince Orchard Road (unconsolidated joint venture – 56.8% ownership)
 
21,745

 
—

 
58,186

 
79,931

 
1
 
306

 
100.0

 
 
27.2

 
 
 
50 and 55 West Watkins Mill Road
 
96,915

 
—

 
—

 
96,915

 
2
 
2,706

 
100.0

 
 
100.0

 
 
 
401 Professional Drive
 
63,154

 
—

 
—

 
63,154

 
1
 
1,558

 
100.0

 
 
100.0

 
 
 
950 Wind River Lane
 
50,000

 
—

 
—

 
50,000

 
1
 
1,004

 
100.0

 
 
100.0

 
 
 
620 Professional Drive
 
27,950

 
—

 
—

 
27,950

 
1
 
1,191

 
100.0

 
 
100.0

 
 
 
Gaithersburg
 
872,402

 
—

 
58,186

 
930,588

 
15
 
$
22,641

 
98.9
%
 
 
92.8
%
 
(1)
Formerly 1818 Fairview Avenue East.

 
30

 
 
Property Listing (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

Market / Submarket / Address
 
RSF 
 
Number of Properties
 
Annual Rental Revenue
 
Occupancy Percentage 
 
 
 
 
 
 
 
 
Operating
 
Operating and Redevelopment
 
Operating
 
Development
 
Redevelopment
 
Total
 
 
 
 
Maryland (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beltsville
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8000/9000/10000 Virginia Manor Road
 
191,884

 
—

 
—

 
191,884

 
1
 
$
2,383

 
94.2
%
 
 
94.2
%
 
 
Northern Virginia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14225 Newbrook Drive
 
248,186

 
—

 
—

 
248,186

 
1
 
5,138

 
100.0

 
 
100.0

 
 
 
Maryland
 
2,462,116

 
—

 
103,225

 
2,565,341

 
37
 
66,375

 
97.2

 
 
93.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research Triangle Park
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research Triangle Park
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Center® – Alston
 
186,870

 
—

 
—

 
186,870

 
3
 
3,496

 
92.3

 
 
92.3

 
 
 
100, 800, and 801 Capitola Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Center® for AgTech – RTP
 
45,143

 
—

 
129,857

 
175,000

 
1
 
1,292

 
100.0

 
 
25.8

 
 
 
5 Laboratory Drive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
108/110/112/114 TW Alexander Drive
 
158,417

 
—

 
—

 
158,417

 
1
 
4,682

 
100.0

 
 
100.0

 
 
 
Alexandria Innovation Center® – Research Triangle Park
 
135,677

 
—

 
—

 
135,677

 
3
 
3,388

 
95.5

 
 
95.5

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

 
—

 
—

 
100,000

 
1
 
1,789

 
97.8

 
 
97.8

 
 
 
7 Triangle Drive
 
96,626

 
—

 
—

 
96,626

 
1
 
3,156

 
100.0

 
 
100.0

 
 
 
2525 East NC Highway 54
 
82,996

 
—

 
—

 
82,996

 
1
 
3,680

 
100.0

 
 
100.0

 
 
 
407 Davis Drive
 
81,956

 
—

 
—

 
81,956

 
1
 
1,644

 
100.0

 
 
100.0

 
 
 
601 Keystone Park Drive
 
77,395

 
—

 
—

 
77,395

 
1
 
1,379

 
100.0

 
 
100.0

 
 
 
6040 George Watts Hill Drive
 
61,547

 
—

 
—

 
61,547

 
1
 
2,148

 
100.0

 
 
100.0

 
 
 
5 Triangle Drive
 
32,120

 
—

 
—

 
32,120

 
1
 
479

 
54.2

 
 
54.2

 
 
 
6101 Quadrangle Drive
 
30,122

 
—

 
—

 
30,122

 
1
 
539

 
100.0

 
 
100.0

 
 
 
Research Triangle Park
 
1,088,869

 
—

 
129,857

 
1,218,726

 
16
 
27,672

 
96.6

 
 
86.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canada
 
256,967

 
—

 
—

 
256,967

 
3
 
6,717

 
98.6

 
 
98.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-cluster markets
 
323,030

 
—

 
—

 
323,030

 
8
 
8,188

 
82.2

 
 
82.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America, excluding properties held for sale
 
21,533,008

 
1,989,088

 
619,535

 
24,141,631

 
234
 
1,004,699

 
97.3
%
 
 
94.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Properties held for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1300 Quince Orchard Boulevard
 
54,874

 
—

 
—

 
54,874

 
1
 
997

 
100.0
%
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total – North America
 
21,587,882

 
1,989,088

 
619,535

 
24,196,505

 
235
 
$
1,005,696

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
31

 
 
 
q318logo1.jpg
Disciplined Management of Ground-Up Developments
September 30, 2018
 
 


q318prelease.jpg
(1)
Represents developments commenced since January 1, 2008, comprising 28 projects aggregating 7.1 million RSF.
(2)
Annual rental revenue from ground-up developments commenced since January 1, 2008, is comprised of:
•
63% from investment-grade credit rated or publicly traded large cap tenants
•
16% from Uber Technologies, Inc., Stripe, Inc., and Pinterest, Inc.
•
21% from all other tenants
(3)
Represents developments commenced and delivered since January 1, 2008, comprising 22 projects aggregating 5.2 million RSF.

 
32

 
 
Investments in Real Estate
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

 
 
Investments in Real Estate
 
Square Feet
 
 
 
Operating
 
Construction
 
Intermediate-Term and Future Projects
 
Total
 
 
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
 
 
 
 
 
 
Rental properties:
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
12,144,386

 
21,314,142

 
—

 
—

 
21,314,142

Unconsolidated(1)
 
N/A

 
273,740

 
—

 
—

 
273,740

 
 
12,144,386

 
21,587,882

 
—

 
—

 
21,587,882

 
 
 
 
 
 
 
 
 
 
 
New Class A development and redevelopment properties:
 
 
 
 
 
 
 
 
 
 
2018 deliveries
 
259,000

 
—

 
489,363

 
—

 
489,363

2019 deliveries
 
 
 
 
 
 
 
 
 
 
Consolidated
 
459,266

 
—

 
946,321

 
—

 
946,321

Unconsolidated(1)
 
N/A

 
—

 
1,172,939

 
—

 
1,172,939

2019 deliveries
 
459,266

 
—

 
2,119,260

 
—

 
2,119,260

New Class A development and redevelopment properties undergoing construction
 
718,266

 
—

 
2,608,623

 
—

 
2,608,623

 
 
 
 
 
 
 
 
 
 
 
Intermediate-term and future development and redevelopment projects:
 
 
 
 
 
 
 
 
 
 
Intermediate-term
 
799,998

 
—

 
—

 
5,585,832

 
5,585,832

Future
 
62,860

 
—

 
—

 
3,105,608

 
3,105,608

Portion of development and redevelopment square feet that will replace existing RSF included in rental properties(2)
 
N/A

 
—

 
—

 
(701,132
)
 
(701,132
)
Intermediate-term and future development and redevelopment projects, excluding RSF related to rental properties
 
862,858

 
—

 
—

 
7,990,308

 
7,990,308

 
 
 
 
 
 
 
 
 
 
 
Gross investments in real estate
 
13,725,510

 
21,587,882

 
2,608,623

 
7,990,308

 
32,186,813

 
 
 
 
24,196,505
 
 
 
 
Less: accumulated depreciation
 
(2,166,330
)
 
 
 
 
 
 
 
 
Net investments in real estate – North America
 
11,559,180

 
 
 
 
 
 
 
 
Net investments in real estate – Asia
 
28,132

 
 
 
 
 
 
 
 
Investments in real estate
 
$
11,587,312

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Our share of the cost basis associated with unconsolidated square feet is classified in investments in unconsolidated real estate joint ventures in our consolidated balance sheets.
(2)
See footnotes 1, 3, and 4 on page 38 and footnote 1 on page 39 of this Supplemental Information for additional information.

 
33

 
New Class A Development and Redevelopment Properties: 2018 Deliveries
q318logo1.jpg
 
 
September 30, 2018
 
 
 


100 Binney Street
 
399 Binney Street
Greater Boston/Cambridge
 
Greater Boston/Cambridge
432,931 RSF
 
164,000 RSF
Bristol-Myers Squibb Company
Facebook, Inc.
 
Rubius Therapeutics, Inc.
Relay Therapeutics, Inc.
Celsius Therapeutics, Inc.
q318binney100.jpg
 
q318binney399.jpg
266 and 275 Second Avenue
 
9625 Towne Centre Drive
 
5 Laboratory Drive
Greater Boston/Route 128
 
San Diego/University Town Center
 
Research Triangle Park/RTP
203,757 RSF
 
163,648 RSF
 
175,000 RSF
Otsuka Pharmaceutical Co., Ltd.
 
Takeda Pharmaceutical Company Ltd.
 
Boragen, Inc.
Elo Life Systems, Inc.
Indigo Ag, Inc.
q318secondave.jpg
 
q318towne9625.jpg
 
q318laboratory5.jpg

 
34

 
New Class A Development and Redevelopment Properties: 2019 Deliveries
q318logo1.jpg
 
 
September 30, 2018
 
 
 



213 East Grand Avenue
 
9900 Medical Center Drive
 
279 East Grand Avenue
 
Alexandria PARC
 
188 East Blaine Street
San Francisco/South San Francisco
 
Maryland/Rockville
 
San Francisco/South San Francisco
 
San Francisco/Greater Stanford
 
Seattle/Lake Union
300,930 RSF
 
45,039 RSF
 
211,405 RSF
 
48,547 RSF
 
198,000 RSF
Merck & Co., Inc.
 
Lonza Walkersville, Inc.
Multi-Tenant/Marketing
 
Verily Life Sciences, LLC
insitro, Inc.
 
Adaptive Insights, Inc.
 
bluebird bio, Inc.
Seattle Cancer Care Alliance
Multi-Tenant/Marketing
q318egrand213.jpg
 
q318medical9900.jpg
 
q318grand279.jpg
 
q318parc.jpg
 
q318eastblaine188.jpg
 
 
 
 
 
 
 
 
 
681 Gateway Boulevard
 
704 Quince Orchard Road
 
Menlo Gateway
 
1655 and 1725 Third Street
 
 
San Francisco/South San Francisco
 
Maryland/Gaithersburg
 
San Francisco/Greater Stanford
 
San Francisco/Mission Bay/SoMa
 
 
142,400 RSF
 
58,186 RSF
 
520,988 RSF
 
593,765 RSF
 
2,119,260 RSF
Twist Bioscience Corporation
Multi-Tenant/Marketing
 
Multi-Tenant/Marketing
 
Facebook, Inc.
 
Uber Technologies, Inc.
 
q318gateway681.jpg
 
q318quince.jpg
 
q318menlogateway.jpg
 
 
 
 
 
 
89% Leased

 
35

 
 
 
 
New Class A Development and Redevelopment Properties: 2018 and 2019 Deliveries
q318logo1.jpg
 
 
September 30, 2018
 
 
 


Property/Market/Submarket
 
Dev/Redev
 
RSF
 
Percentage
 
Project Start
 
Occupancy(1)
 
 
In Service
 
CIP
 
Total
 
Leased
 
Leased/Negotiating
 
 
Initial
 
Stabilized
2018 deliveries: consolidated projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
266 and 275 Second Avenue/Greater Boston/Route 128
 
Redev
 
171,899

 
31,858

 
203,757

 
85
%
 
 
90
%
 
 
3Q17
 
1Q18
 
2019
5 Laboratory Drive/Research Triangle Park/RTP
 
Redev
 
45,143

 
129,857

 
175,000

 
51

 
 
98

 
 
2Q17
 
2Q18
 
2019
9625 Towne Centre Drive/San Diego/University Town Center
 
Redev
 
—

 
163,648

 
163,648

 
100

 
 
100

 
 
3Q15
 
4Q18
 
4Q18
399 Binney Street/Greater Boston/Cambridge
 
Dev
 
—

 
164,000

 
164,000

 
75

 
 
98

 
 
4Q17
 
4Q18
 
2019
2018 deliveries
 
 
 
217,042

 
489,363

 
706,405

 
78

 
 
96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 deliveries: consolidated projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
213 East Grand Avenue/San Francisco/South San Francisco
 
Dev
 
—

 
300,930

 
300,930

 
100

 
 
100

 
 
2Q17
 
1Q19
 
1Q19
9900 Medical Center Drive/Maryland/Rockville
 
Redev
 
—

 
45,039

 
45,039

 
58

 
 
58

 
 
3Q17
 
1Q19
 
2019
279 East Grand Avenue/San Francisco/South San Francisco
 
Dev
 
—

 
211,405

 
211,405

 
100

 
 
100

 
 
4Q17
 
1Q19
 
2020
Alexandria PARC/San Francisco/Greater Stanford
 
Redev
 
148,951

 
48,547

 
197,498

 
100

 
 
100

 
 
1Q18
 
2Q19
 
2Q19
188 East Blaine Street/Seattle/Lake Union(2)
 
Dev
 
—

 
198,000

 
198,000

 
33

 
 
64

 
 
2Q18
 
2Q19
 
2020
681 Gateway Boulevard/San Francisco/South San Francisco(3)
 
Redev
 
—

 
142,400

 
142,400

 
43

 
 
97

 
 
3Q18
 
2Q19
 
2020
 
 
 
 
148,951

 
946,321

 
1,095,272

 
79

 
 
91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 deliveries: unconsolidated joint venture projects(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
704 Quince Orchard Road/Maryland/Gaithersburg
 
Redev
 
21,745

 
58,186

 
79,931

 
38

 
 
50

 
 
1Q18
 
1Q19
 
2020
Menlo Gateway/San Francisco/Greater Stanford
 
Dev
 
251,995

 
520,988

 
772,983

 
100

 
 
100

 
 
4Q17
 
4Q19
 
4Q19
1655 and 1725 Third Street/San Francisco/Mission Bay/SoMa
 
Dev
 
—

 
593,765

 
593,765

 
100

 
 
100

 
 
1Q18
 
4Q19
 
4Q19
 
 
 
 
273,740

 
1,172,939

 
1,446,679

 
97

 
 
97

 
 
 
 
 
 
 
2019 deliveries
 
 
 
422,691

 
2,119,260

 
2,541,951

 
89

 
 
95

 
 
 
 
 
 
 
2018 and 2019 deliveries
 
 
 
639,733

 
2,608,623
 
3,248,356
 
86
%
 
 
95
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Initial occupancy dates are subject to leasing and/or market conditions. Stabilized occupancy may vary depending on single tenancy versus multi-tenancy.
(2)
Formerly 1818 Fairview Avenue East.
(3)
Conversion of single tenant office space to multi-tenant office/laboratory space through redevelopment.
(4)
See “Joint Venture Financial Information” on page 41 of this Supplemental Information for additional information.





 
36

New Class A Development and Redevelopment Properties: 2018 and 2019 Deliveries (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 

 
 
Our Ownership Interest
 
 
 
 
 
Cost to Complete
 
 
 
 
Unlevered Yields
Property/Market/Submarket
 
 
In Service
 
CIP
 
Construction Loan
 
ARE
Funding
 
Total at
Completion
 
Initial Stabilized
 
Initial Stabilized (Cash)
 
 
 
 
 
 
 
 
2018 deliveries: consolidated projects under construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
266 and 275 Second Avenue/Greater Boston/Route 128
 
100
%
 
 
$
73,635

 
$
10,215

 
$
—

 
$
5,150

 
$
89,000

 
 
8.4
%
 
 
 
7.1
%
 
5 Laboratory Drive/Research Triangle Park/RTP
 
100
%
 
 
9,722

 
29,899

 
 
—

 
 
22,879

 
 
62,500

 
 
7.7

 
 
 
7.6

 
9625 Towne Centre Drive/San Diego/University Town Center
 
50.1
%
 
 
—

 
78,815

 
 
—

 
 
14,185

 
 
93,000

 
 
7.0

 
 
 
7.0

 
399 Binney Street/Greater Boston/Cambridge
 
100
%
 
 
—

 
140,071

 
 
—

 
 
33,929

 
 
174,000

 
 
7.3

 
 
 
6.7

 
2018 deliveries
 
 
 
 
83,357

 
259,000

 
 
—

 
 
76,143

 
 
418,500

 
 
7.5

 
 
 
7.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 deliveries: consolidated projects under construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
213 East Grand Avenue/San Francisco/South San Francisco
 
100
%
 
 
—

 
208,561

 
 
—

 
 
51,439

 
 
260,000

 
 
7.2

 
 
 
6.4

 
9900 Medical Center Drive/Maryland/Rockville
 
100
%
 
 
—

 
9,977

 
 
—

 
 
4,323

 
 
14,300

 
 
8.4

 
 
 
8.4

 
279 East Grand Avenue/San Francisco/South San Francisco
 
100
%
 
 
—

 
80,770

 
 
—

 
 
70,230

 
 
151,000

 
 
7.8

 
 
 
8.1

 
Alexandria PARC/San Francisco/Greater Stanford
 
100
%
 
 
95,097

 
33,412

 
 
—

 
 
21,491

 
 
150,000

 
 
7.3

 
 
 
6.1

 
188 East Blaine Street/Seattle/Lake Union(1)
 
100
%
 
 
—

 
78,085

 
 
—

 
 
111,915

 
 
190,000

 
 
6.7

 
 
 
6.7

 
681 Gateway Boulevard/San Francisco/South San Francisco
 
100
%
 
 
—

 
48,461

 
 
—

 
 
59,539

 
 
108,000

 
 
8.5

 
 
 
7.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95,097

 
459,266

 
 
—

 
 
318,937

 
 
873,300

 
 
7.4

 
 
 
6.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 deliveries: unconsolidated joint venture projects(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(amounts represent our share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
704 Quince Orchard Road/Maryland/Gaithersburg
 
56.8
%
 
 
1,207

 
5,386

 
 
5,801

 
 
906

 
 
13,300

 
 
8.9

 
 
 
8.8

 
Menlo Gateway/San Francisco/Greater Stanford
 
33.7
%
 
 
87,846

 
104,081

 
 
99,094

 
 
138,979

 
 
430,000

 
 
6.9

 
 
 
6.3

 
1655 and 1725 Third Street/San Francisco/Mission Bay/SoMa
 
10.0
%
 
 
—

 
49,798

 
 
25,311

 
 
2,891

 
 
78,000

 
 
7.8

 
 
 
6.0

 
 
 
 
 
 
89,053

 
159,265

 
 
130,206

 
 
142,776

 
 
521,300

 
 
7.1

 
 
 
6.3

 
2019 deliveries
 
 
 
184,150

 
618,531

 
 
130,206

 
 
461,713

 
 
1,394,600

 
 
7.3

 
 
 
6.7

 
2018 and 2019 deliveries
 
 
 
 
$
267,507

 
$
877,531

 
$
130,206

 
$
537,856

 
$
1,813,100

 
 
7.3
%
 
 
 
6.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Formerly 1818 Fairview Avenue East.
(2)
See “Joint Venture Financial Information” on page 41 of this Supplemental Information for additional information.


 
37

 
 
New Class A Development and Redevelopment Properties: Summary of Pipeline
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 



Property/Submarket
 
Our Ownership Interest
 
Book Value
 
Square Footage
 
 
 
 
Projected Deliveries
 
Intermediate-
Term Projects
 
Future
 
 
 
 
 
 
2018
 
2019
 
 
 
Total(1)
 
Greater Boston
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undergoing construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
399 Binney Street (Alexandria Center® at One Kendall Square)/Cambridge
 
100
%
 
 
 
$
140,071

 
 
164,000

 
—

 
 
—

 
 
—

 
 
164,000

 
266 and 275 Second Avenue/Route 128
 
100
%
 
 
 
10,215

 
 
31,858

 
—

 
 
—

 
 
—

 
 
31,858

 
Intermediate-term development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
325 Binney Street/Cambridge
 
100
%
 
 
 
97,484

 
 
—

 
—

 
 
208,965

 
 
—

 
 
208,965

 
Future development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Technology Square®/Cambridge
 
100
%
 
 
 
7,787

 
 
—

 
—

 
 
—

 
 
100,000

 
 
100,000

 
100 Tech Drive/Route 128
 
100
%
 
 
 
—

 
 
—

 
—

 
 
—

 
 
300,000

 
 
300,000

 
Other value-creation projects
 
100
%
 
 
 
13,205

 
 
—

 
—

 
 
—

 
 
405,599

 
 
405,599

 
 
 
 
 
 
 
268,762

 
 
195,858

 
—

 
 
208,965

 
 
805,599

 
 
1,210,422

 
San Francisco
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undergoing construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1655 and 1725 Third Street/Mission Bay/SoMa
 
10.0
%
 
 
 
—

(2) 
 
—

 
593,765

 
 
—

 
 
—

 
 
593,765

 
213 East Grand Avenue/South San Francisco
 
100
%
 
 
 
208,561

 
 
—

 
300,930

 
 
—

 
 
—

 
 
300,930

 
279 East Grand Avenue/South San Francisco
 
100
%
 
 
 
80,770

 
 
—

 
211,405

 
 
—

 
 
—

 
 
211,405

 
681 Gateway Boulevard/South San Francisco
 
100
%
 
 
 
48,461

 
 
—

 
142,400

 
 
—

 
 
—

 
 
142,400

 
Menlo Gateway/Greater Stanford
 
33.7
%
 
 
 
—

(2) 
 
—

 
520,988

 
 
—

 
 
—

 
 
520,988

 
Alexandria PARC/Greater Stanford
 
100
%
 
 
 
33,412

 
 
—

 
48,547

 
 
—

 
 
—

 
 
48,547

 
Intermediate-term development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
88 Bluxome Street/Mission Bay/SoMa
 
100
%
 
 
 
173,338

 
 
—

 
—

 
 
1,070,925

(1) 
 
—

 
 
1,070,925

 
505 Brannan Street, Phase II/Mission Bay/SoMa
 
99.7
%
 
 
 
16,263

 
 
—

 
—

 
 
165,000

 
 
—

 
 
165,000

 
201 Haskins Way/South San Francisco
 
100
%
 
 
 
46,159

 
 
—

 
—

 
 
280,000

 
 
—

 
 
280,000

 
960 Industrial Road/Greater Stanford
 
100
%
 
 
 
79,659

 
 
—

 
—

 
 
533,000

(1)(3) 
 
—

 
 
533,000

 
825 and 835 Industrial Road/Greater Stanford
 
100
%
 
 
 
123,986

 
 
—

 
—

 
 
530,000

 
 
—

 
 
530,000

 
Future development
 
 
 
 
 


 
 

 
 
 
 

 
 

 
 

 
East Grand Avenue/South San Francisco
 
100
%
 
 
 
5,988

 
 
—

 
—

 
 
—

 
 
90,000

 
 
90,000

 
Other value-creation projects
 
100
%
 
 
 
1,944

 
 
—

 
—

 
 
70,620

 
 
25,000

 
 
95,620

 
 
 
 
 
 
 
818,541

 
 
—

 
1,818,035

 
 
2,649,545

 
 
115,000

 
 
4,582,580

 
New York City
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intermediate-term development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alexandria Center® for Life Science – New York City/New York City
 
100
%
 
 
 
11,702

 
 
—

 
—

 
 
550,000

 
 
—

 
 
550,000

 
Future redevelopment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
219 East 42nd Street/New York City
 
100
%
 
 
 
—

 
 
—

 
—

 
 
—

 
 
579,947

(4) 
 
579,947

 
 
 
 
 
 
 
$
11,702

 
 
—

 
—

 
 
550,000

 
 
579,947

 
 
1,129,947

 
(1)    Represents total square footage upon completion of development of a new Class A property. RSF presented includes RSF of a building currently in operation that will be demolished upon commencement of construction.
(2)    This property is an unconsolidated real estate joint venture. See our share of the investment in real estate on page 41 of this Supplemental Information for additional information.
(3)    Represents total RSF available for future development in either (i) one phase aggregating 533,000 RSF or (ii) two phases consisting of 423,000 RSF and 110,000 RSF, upon receiving entitlements.
(4)    Includes 349,947 RSF in operation with an opportunity to either convert the existing office space into office/laboratory space through future redevelopment or to expand the building by an additional 230,000 RSF through ground-up development. The building is currently occupied by Pfizer Inc. with a remaining lease term of six years.

 
38

 
 
New Class A Development and Redevelopment Properties: Summary of Pipeline (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 


Property/Submarket
 
Our Ownership Interest
 
Book Value
 
Square Footage
 
 
 
 
Projected Deliveries
 
Intermediate-
Term Projects
 
Future
 
 
 
 
 
 
2018
 
2019
 
 
 
Total(1)
 
San Diego
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undergoing construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9625 Towne Centre Drive/University Town Center
 
50.1
%
 
 
 
$
78,815

 
 
163,648

 
—

 
 
—

 
 
—

 
 
163,648

 
Intermediate-term development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5200 Illumina Way/University Town Center
 
100
%
 
 
 
11,808

 
 
—

 
—

 
 
386,044

 
 
—

 
 
386,044

 
Campus Pointe by Alexandria/University Town Center
 
55.0
%
 
 
 
16,811

 
 
—

 
—

 
 
318,383

 
 
—

 
 
318,383

 
9880 Campus Point Drive/University Town Center
 
100
%
 
 
 
47,933

 
 
—

 
—

 
 
98,000

 
 
—

 
 
98,000

 
Future development
 
 
 
 
 


 
 

 
 
 
 

 
 

 
 

 
Vista Wateridge/Sorrento Mesa
 
100
%
 
 
 
4,022

 
 
—

 
—

 
 
—

 
 
163,000

 
 
163,000

 
Other value-creation projects
 
100
%
 
 
 
52,471

 
 
—

 
—

 
 
185,895

 
 
249,000

 
 
434,895

 
 
 
 
 
 
 
211,860

 
 
163,648

 
—

 
 
988,322

 
 
412,000

 
 
1,563,970

 
Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undergoing construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
188 East Blaine Street/Lake Union(2)
 
100
%
 
 
 
78,085

 
 
—

 
198,000

 
 
—

 
 
—

 
 
198,000

 
Intermediate-term development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1150 Eastlake Avenue East/Lake Union
 
100
%
 
 
 
22,016

 
 
—

 
—

 
 
260,000

 
 
—

 
 
260,000

 
701 Dexter Avenue North/Lake Union
 
100
%
 
 
 
36,945

 
 
—

 
—

 
 
217,000

 
 
—

 
 
217,000

 
1165 Eastlake Avenue East/Lake Union
 
100
%
 
 
 
16,357

 
 
—

 
—

 
 
106,000

 
 
—

 
 
106,000

 
 
 
 
 
 
 
153,403

 
 
—

 
198,000

 
 
583,000

 
 
—

 
 
781,000

 
Maryland
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undergoing construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9900 Medical Center Drive/Rockville
 
100
%
 
 
 
9,977

 
 
—

 
45,039

 
 
—

 
 
—

 
 
45,039

 
704 Quince Orchard Road/Gaithersburg
 
56.8
%
 
 
 
—

(3) 
 
—

 
58,186

 
 
—

 
 
—

 
 
58,186

 
Intermediate-term development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9800 Medical Center Drive/Rockville
 
100
%
 
 
 
12,656

 
 
—

 
—

 
 
180,000

 
 
—

 
 
180,000

 
9950 Medical Center Drive/Rockville
 
100
%
 
 
 
4,041

 
 
—

 
—

 
 
61,000

 
 
—

 
 
61,000

 
 
 
 
 
 
 
26,674

 
 
—

 
103,225

 
 
241,000

 

—

 
 
344,225

 
Research Triangle Park
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undergoing construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5 Laboratory Drive/Research Triangle Park
 
100
%
 
 
 
29,899

 
 
129,857

 
—

 
 
—

 
 
—

 
 
129,857

 
Intermediate-term and future development
 
 
 
 
 


 
 

 
 
 
 

 
 

 
 

 
6 Davis Drive/Research Triangle Park
 
100
%
 
 
 
17,127

 
 
—

 
—

 
 
130,000

 
 
870,000

 
 
1,000,000

 
Other value-creation projects
 
100
%
 
 
 
5,154

 
 
—

 
—

 
 
—

 
 
176,262

 
 
176,262

 
 
 
 
 
 
 
52,180

 
 
129,857

 
—

 
 
130,000

 
 
1,046,262

 
 
1,306,119

 
Other value-creation projects
 
Various

 
 
 
38,002

 
 
—

 
—

 
 
235,000

(1) 
 
146,800

 
 
381,800

 
 
 
 
 
 
 
$
1,581,124

 
 
489,363

 
2,119,260

 
 
5,585,832

 
 
3,105,608

 
 
11,300,063

 

(1)
Represents total square footage upon completion of development of a new Class A property. RSF presented includes RSF of a building currently in operation that will be demolished upon commencement of construction.
(2)
Formerly 1818 Fairview Avenue East.
(3)
This property is an unconsolidated real estate joint venture. See our share of the investment in real estate on page 41 of this Supplemental Information for additional information.


 
39

 
 
Construction Spending
q318logo1.jpg
September 30, 2018
(Dollars in thousands, except per RSF amounts)
 
 



 
 
Nine Months Ended
 
Construction Spending
 
September 30, 2018
 
Additions to real estate – consolidated projects
 
$
663,688
 
 
Investments in unconsolidated real estate joint ventures
 
 
77,501
 
 
Contributions from noncontrolling interests
 
 
(15,837
)
 
Construction spending (cash basis)(1)
 
 
725,352
 
 
Increase in accrued construction
 
 
69,654
 
 
Construction spending
 
$
795,006
 
 



 
 
 
 
 
 
Projected Construction Spending
 
Year Ending
December 31, 2018
 
Development and redevelopment projects
 
$
243,000
 
 
Investments in unconsolidated real estate joint ventures
 
 
41,000
 
 
Contributions from noncontrolling interests (consolidated real estate joint ventures)
 
 
(18,000
)
 
Generic laboratory infrastructure/building improvement projects
 
 
32,000
 
 
Non-revenue-enhancing capital expenditures and tenant improvements
 
 
7,000
 
 
Projected construction spending for three months ending December 31, 2018
 
 
305,000
 
 
Actual construction spending for nine months ended September 30, 2018
 
 
795,006
 
 
Guidance range
 
$
1,050,000
–
$1,150,000
 
 
 
 
 
 
 
 
Non-Revenue-Enhancing Capital Expenditures(2)
 
Nine Months Ended
 
Recent Average
per RSF(3)
 
 
September 30, 2018
 
 
 
Amount
 
Per RSF
 
 
Non-revenue-enhancing capital expenditures
 
$
8,484

 
$
0.40

 
 
$
0.51

 
 
 
 
 
 
 
 
 
 
Tenant improvements and leasing costs:
 
 
 
 
 
 
 
 
Re-tenanted space
 
$
17,101

 
$
24.74

 
 
$
20.45

 
Renewal space
 
14,169

 
18.98

(4) 
 
12.98

 
Total tenant improvements and leasing costs/weighted average
 
$
31,270

 
$
21.75

 
 
$
15.62

 


 


(1)
Includes revenue-enhancing projects and non-revenue-enhancing capital expenditures.
(2)
Excludes amounts that are recoverable from tenants, related to revenue-enhancing capital expenditures, or related to properties that have undergone redevelopment.
(3)
Represents the average of 2014–2017 and the nine months ended September 30, 2018, annualized.
(4)
Includes $8.4 million of tenant improvements related to the 12-year lease renewal of 129,424 RSF with Alnylam Pharmaceuticals, Inc. at 300 Third Street in our Cambridge submarket. The increase in rental rates, net of tenant improvements and leasing commissions per RSF, on this renewal was 77%.

 
40

 
 
Joint Venture Financial Information
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 


Consolidated Real Estate Joint Ventures
(controlled by us through contractual rights or majority voting rights)
 
Unconsolidated Real Estate Joint Ventures
(controlled jointly or by our JV partners through contractual rights or majority voting rights)
Property/Market/Submarket
 
Noncontrolling
Interest Share(1)
 
Property/Market/Submarket
 
Our Ownership Share(2)
225 Binney Street/Greater Boston/Cambridge
 
 
70.0
%
 
 
1655 and 1725 Third Street/San Francisco/Mission Bay/SoMa
 
 
10.0
%
 
409 and 499 Illinois Street/San Francisco/Mission Bay/SoMa
 
 
40.0
%
 
 
Menlo Gateway/San Francisco/Greater Stanford
 
 
33.7
%
(3) 
1500 Owens Street/San Francisco/Mission Bay/SoMa
 
 
49.9
%
 
 
1401/1413 Research Boulevard/Maryland/Rockville
 
 
65.0
%
(4) 
Campus Pointe by Alexandria/San Diego/University Town Center
 
 
45.0
%
 
 
704 Quince Orchard Road/Maryland/Gaithersburg
 
 
56.8
%
(4) 
9625 Towne Centre Drive/San Diego/University Town Center
 
 
49.9
%
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 

 
 
September 30, 2018
 
 
Noncontrolling Interest Share of Consolidated Real Estate JVs
 
Our Share of Unconsolidated
Real Estate JVs
Investments in real estate
$
523,048

 
 
$
266,896

 
Cash and cash equivalents
 
18,129

 
 
 
3,265

 
Restricted cash
 
—

 
 
 
53

 
Other assets
 
33,230

 
 
 
20,896

 
Secured notes payable (see page 46)
 
—

 
 
 
(73,967
)
 
Other liabilities
 
(33,806
)
 
 
 
(19,173
)
 
Redeemable noncontrolling interests
 
(10,771
)
 
 
 
—

 
 
$
529,830

 
 
$
197,970

 
 
 
 
 
 
 
 
 
 
Noncontrolling Interest Share of Consolidated Real Estate JVs
 
Our Share of Unconsolidated Real Estate JVs
 
 
3Q18
 
 
YTD 3Q18
 
 
3Q18
 
 
YTD 3Q18
Total revenues
$
13,984

 
 
$
41,358

 
$
8,774

 
 
$
14,301

Rental operations
 
(4,403
)
 
 
(12,585
)
 
 
(3,124
)
 
 
(4,450
)
 
 
9,581

 
 
28,773

 
 
5,650

 
 
9,851

General and administrative
 
(40
)
 
 
(172
)
 
 
(24
)
 
 
(71
)
Interest
 
—

 
 
—

 
 
(336
)
 
 
(805
)
Depreciation and amortization
 
(4,044
)
 
 
(11,825
)
 
 
(1,011
)
 
 
(2,462
)
Gain on early extinguishment of debt
 
—

 
 
—

 
 
761

 
 
761

Gain on sales of real estate(5)
 
—

 
 
—

 
 
35,678

 
 
35,678

 
$
5,497

 
 
$
16,776

 
$
40,718

 
 
$
42,952



(1)
In addition to the consolidated real estate joint ventures listed, various partners hold insignificant noncontrolling interests in four other joint ventures in North America.
(2)
In addition to the unconsolidated real estate joint ventures listed, we hold one other insignificant unconsolidated real estate joint venture in North America.
(3)
As of September 30, 2018, we have an ownership interest in Menlo Gateway of 33.7% and expect our ownership to increase to 49% through future funding of construction costs in 2019.
(4)
Represents our ownership interest; our voting interest is limited to 50%.
(5)
Related to the sale of our remaining 27.5% ownership interest in our 360 Longwood Avenue unconsolidated real estate joint venture, located in our Longwood Medical Area submarket. See “Dispositions” on page 6 of our Earnings Press Release for additional information.

 
41

 
 
Investments
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 


On January 1, 2018, we adopted a new accounting standard that requires us, on a prospective basis, to present our equity investments at fair value whenever fair value or net asset value (“NAV”) is readily available. For investments without readily available fair values, we adjust the cost basis whenever such investments have an observable price change. Further adjustments are not made until another price change, if any, is observed. See definition of “Investments” on page 49 of this Supplemental Information for information related to our adoption of this new accounting standard.


 
 
September 30, 2018
 
 
Three Months Ended
 
Nine Months Ended
Realized gains
 
$
5,015

 
 
$
25,810

 
Unrealized gains
 
117,188

 
 
194,484

 
Investment income
 
$
122,203

 
 
$
220,294

 
 
 
 
 
 
 
 


Investments
 
Cost
 
Adjustments
 
Carrying Amount
 
Fair value:
 
 
 
 
 
 
 
 
 
 
Publicly traded companies
 
$
119,634

 
 
$
136,310

 
 
$
255,944

 
 
Entities that report NAV
 
186,098

 
 
139,891

(1) 
 
325,989

 
 
 
 
 
 
 
 
 
 
 
 
 
Entities that do not report NAV:
 
 
 
 
 
 
 
 
 
 
Entities with observable price changes since 1/1/18
 
30,522

 
 
59,206

 
 
89,728

 
 
Entities without observable price changes
 
285,695

 
 
—

 
 
285,695

 
 
September 30, 2018
 
$
621,949

 
 
$
335,407

(2) 
 
$
957,356

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018
 
$
572,608

 
 
$
218,145

 
 
$
790,753

 
 




(1)
Represents adjustments, using reported NAV as a practical expedient to estimate fair value, for our limited partnership investments.
(2)
Consists of unrealized gains recognized (i) of $50 million on our investments in publicly traded companies prior to our adoption of the new accounting standard, (ii) of $91 million on our investments in privately held entities that report NAV upon our adoption of the new accounting standard, and (iii) of $194 million related to total equity investments subsequent to our adoption of the new accounting standard.
 
 
Public/Private Mix (Cost)
 
 
 
 
Tenant/Non-Tenant Mix (Cost)
 
 
 
 
 
 
 
298
$2.1M
 
 
Holdings
Average Cost
of Investment
 

 
42

 
 
 
q318logo1.jpg
Key Credit Metrics
September 30, 2018
 
 


Net Debt to Adjusted EBITDA(1)
 
Net Debt and Preferred Stock to Adjusted EBITDA(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-Charge Coverage Ratio(1)
 
Liquidity(2)
 
 
 
 
 
 
$2.9B
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
Availability under our $2.2 billion unsecured senior line of credit
$
1,787

 
 
Outstanding forward equity sales agreements
606

 
 
Cash, cash equivalents, and restricted cash
234

 
 
Investments in publicly traded companies
256

 
 
 
$
2,883

 
 
 
 
 
 
 
 
 

(1)
Quarter annualized.    
(2)
As of September 30, 2018.

 
43

 
 
 
q318logo1.jpg
Summary of Debt
September 30, 2018
 
 


Debt maturities chart
(In millions)
(1)
Includes our secured construction loan for our property at 50 and 60 Binney Street in our Cambridge submarket with an outstanding balance of $193.1 million as of September 30, 2018. We have two one-year options to extend the stated maturity date to January 28, 2021, subject to certain conditions. We expect to exercise the first right to extend the maturity date to January 28, 2020.
(2)
We generally have limited outstanding borrowings under our unsecured senior line of credit as of December 31. Our average outstanding balance as of December 31 for the past three years under our unsecured senior line of credit has been approximately $133.3 million. Additionally, we generally amend and extend our unsecured senior line of credit every two to three years.
(3)
We anticipate reducing the outstanding borrowings under our unsecured senior bank term loan over the next several years.

Fixed-rate/hedged and unhedged variable-rate debt
(Dollars in thousands)
 
Fixed-Rate/Hedged
Variable-Rate Debt
 
Unhedged
Variable-Rate Debt
 
Total
 
Percentage
 
Weighted-Average
 
 
 
 
 
Interest Rate(1)
 
Remaining Term
(in years)
 
 
 
 
 
 
Secured notes payable
$
439,689

 
$
193,103

 
$
632,792

 
11.1
%
 
4.42
%
 
3.0
Unsecured senior notes payable
4,290,906

 
—

 
4,290,906

 
75.5

 
4.15

 
6.6
$2.2 billion unsecured senior line of credit(2)
250,000

 
163,000

 
413,000

 
7.3

 
2.79

 
5.3
Unsecured senior bank term loan(2)
347,306

 
—

 
347,306

 
6.1

 
2.21

 
5.3
Total/weighted average
$
5,327,901

 
$
356,103

 
$
5,684,004

 
100.0
%
 
3.96
%
 
6.1
Percentage of total debt
94
%
 
6
%
 
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 loan fees, amortization of debt premiums (discounts), and other bank fees.
(2)
See footnote 2 above.

 
44

 
 
Summary of Debt (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 


Debt
 
Stated 
Rate
 
Interest
Rate(1)
 
Maturity
Date(2)
 
Principal Payments Remaining for the Periods Ending December 31,
 
Principal
 
Unamortized (Deferred Financing Cost), (Discount)/Premium
 
Total
 
 
 
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
 
 
 
Secured notes payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Boston
 
L+1.50
%
 
 
3.94
%
 
1/28/19
(3) 
 
$
—

 
$
193,103

 
$
—

 
$
—

 
$
—

 
$
—

 
$
193,103

 
$
(228
)
 
$
192,875

 
Greater Boston, San Diego, Seattle, and Maryland
 
7.75
%
 
 
8.15

 
4/1/20
 
 
509

 
2,138

 
104,352

 
—

 
—

 
—

 
106,999

 
(501
)
 
106,498

 
San Diego
 
4.66
%
 
 
4.90

 
1/1/23
 
 
272

 
1,686

 
1,762

 
1,852

 
1,942

 
26,259

 
33,773

 
(280
)
 
33,493

 
Greater Boston
 
3.93
%
 
 
3.19

 
3/10/23
 
 
367

 
1,505

 
1,566

 
1,628

 
1,693

 
74,517

 
81,276

 
2,435

 
83,711

 
Greater Boston
 
4.82
%
 
 
3.40

 
2/6/24
 
 
753

 
3,078

 
3,204

 
3,392

 
3,561

 
187,281

 
201,269

 
14,195

 
215,464

 
San Francisco
 
6.50
%
 
 
6.50

 
7/1/36
 
 
—

 
23

 
25

 
26

 
28

 
649

 
751

 
—

 
751

 
Secured debt weighted-average interest rate/subtotal
 
4.87
%
 
 
4.42

 
 
 
 
1,901

 
201,533

 
110,909

 
6,898

 
7,224

 
288,706

 
617,171

 
15,621

 
632,792

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$2.2 billion unsecured senior line of credit
 
L+0.825
%
 
 
2.79

 
1/28/24
 
 
—

 
—

 
—

 
—

 
—

 
413,000

 
413,000

 
—

 
413,000

 
Unsecured senior bank term loan
 
L+0.90
%
 
 
2.21

 
1/28/24
 
 
—

 
—

 
—

 
—

 
—

 
350,000

 
350,000

 
(2,694
)
 
347,306

 
Unsecured senior notes payable
 
2.75
%
 
 
2.96

 
1/15/20
 
 
—

 
—

 
400,000

 
—

 
—

 
—

 
400,000

 
(1,041
)
 
398,959

 
Unsecured senior notes payable
 
4.60
%
 
 
4.75

 
4/1/22
 
 
—

 
—

 
—

 
—

 
550,000

 
—

 
550,000

 
(2,277
)
 
547,723

 
Unsecured senior notes payable
 
3.90
%
 
 
4.04

 
6/15/23
 
 
—

 
—

 
—

 
—

 
—

 
500,000

 
500,000

 
(2,800
)
 
497,200

 
Unsecured senior notes payable
 
4.00
%
 
 
4.18

 
1/15/24
 
 
—

 
—

 
—

 
—

 
—

 
450,000

 
450,000

 
(3,867
)
 
446,133

 
Unsecured senior notes payable
 
3.45
%
 
 
3.62

 
4/30/25
 
 
—

 
—

 
—

 
—

 
—

 
600,000

 
600,000

 
(5,740
)
 
594,260

 
Unsecured senior notes payable
 
4.30
%
 
 
4.50

 
1/15/26
 
 
—

 
—

 
—

 
—

 
—

 
300,000

 
300,000

 
(3,531
)
 
296,469

 
Unsecured senior notes payable
 
3.95
%
 
 
4.13

 
1/15/27
 
 
—

 
—

 
—

 
—

 
—

 
350,000

 
350,000

 
(4,158
)
 
345,842

 
Unsecured senior notes payable
 
3.95
%
 
 
4.07

 
1/15/28
 
 
—

 
—

 
—

 
—

 
—

 
425,000

 
425,000

 
(3,921
)
 
421,079

 
Unsecured senior notes payable
 
4.50
%
 
 
4.60

 
7/30/29
 
 
—

 
—

 
—

 
—

 
—

 
300,000

 
300,000

 
(2,398
)
 
297,602

 
Unsecured senior notes payable
 
4.70
%
 
 
4.81

 
7/1/30
 
 
—

 
—

 
—

 
—

 
—

 
450,000

 
450,000

 
(4,361
)
 
445,639

 
Unsecured debt weighted average/subtotal
 
 
 
 
3.90

 
 
 
 
—

 
—

 
400,000

 
—

 
550,000

 
4,138,000

 
5,088,000

 
(36,788
)
 
5,051,212

 
Weighted-average interest rate/total
 
 
 
 
3.96
%
 
 
 
 
$
1,901

 
$
201,533

 
$
510,909

 
$
6,898

 
$
557,224

 
$
4,426,706

 
$
5,705,171

 
$
(21,167
)
 
$
5,684,004

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balloon payments
 
 
 
 
 
 
 
 
 
$
—

 
$
193,103

 
$
503,979

 
$
—

 
$
550,000

 
$
4,421,724

 
$
5,668,806

 
$
—

 
$
5,668,806

 
Principal amortization
 
 
 
 
 
 
 
 
 
1,901

 
8,430

 
6,930

 
6,898

 
7,224

 
4,982

 
36,365

 
(21,167
)
 
15,198

 
Total debt
 
 
 
 
 
 
 
 
 
$
1,901

 
$
201,533

 
$
510,909

 
$
6,898

 
$
557,224

 
$
4,426,706

 
$
5,705,171

 
$
(21,167
)
 
$
5,684,004

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate/hedged variable-rate debt
 
 
 
 
 
 
 
 
 
$
1,901

 
$
8,430

 
$
510,909

 
$
6,898

 
$
557,224

 
$
4,263,706

 
$
5,349,068

 
$
(21,167
)
 
$
5,327,901

 
Unhedged variable-rate debt
 
 
 
 
 
 
 
 
 
—

 
193,103

 
—

 
—

 
—

 
163,000

 
356,103

 
—

 
356,103

 
Total debt
 
 
 
 
 
 
 
 
 
$
1,901

 
$
201,533

 
$
510,909

 
$
6,898

 
$
557,224

 
$
4,426,706

 
$
5,705,171

 
$
(21,167
)
 
$
5,684,004

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average stated rate on maturing debt
 
 
 
 
 
 
 
 
 
N/A

 
3.76%

 
3.81%

 
N/A

 
4.60%

 
3.92%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(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 loan fees, amortization of debt premiums (discounts), and other bank fees.
(2)
Reflects any extension options that we control.
(3)
We have two one-year options to extend the stated maturity date to January 28, 2021, subject to certain conditions. We expect to exercise the first right to extend the maturity date to January 28, 2020.

 
45

 
 
Summary of Debt (continued)
q318logo1.jpg
September 30, 2018
(Dollars in thousands)
 
 


Unconsolidated real estate joint ventures’ debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100% at JV Level
 
Unconsolidated Joint Venture
 
Our Share
 
Maturity Date
 
Stated
Interest Rate
 
Interest Rate(1)
 
Debt Balance(2)
 
Remaining Commitments
 
1401/1413 Research Boulevard
 
 
65.0
%
 
 
5/17/20
 
L+2.50%
 
 
5.60
%
 
 
$
18,415

 
$
9,131

 
1655 and 1725 Third Street
 
 
10.0
%
 
 
6/29/21
 
L+3.70%
 
 
5.80
%
 
 
121,889

 
253,111

 
704 Quince Orchard Road
 
 
56.8
%
 
 
3/16/23
 
L+1.95%
 
 
4.36
%
 
 
2,932

 
11,901

 
Menlo Gateway, Phase II
 
 
33.7
%
(3) 
 
5/1/35
 
4.53%
 
 
N/A

 
 
—

 
157,270

 
Menlo Gateway, Phase I
 
 
33.7
%
(3) 
 
8/1/35
 
4.15%
 
 
4.18
%
 
 
144,336

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
287,572

 
$
431,413

 

(1)
Includes interest expense, amortization of loan fees, and amortization of premiums (discounts) as of September 30, 2018.
(2)
Represents outstanding principal, net of unamortized deferred financing costs and discount/premium.
(3)
See page 41 of this Supplemental Information for additional information.

Debt covenants
 
 
 
 
 
 
 
 
 
Debt Covenant Ratios(1)
 
Unsecured Senior Notes Payable
 
$2.2 Billion Unsecured Senior Line of Credit and
Unsecured Senior Bank Term Loan
 
Requirement
 
September 30, 2018
 
Requirement
 
September 30, 2018
Total Debt to Total Assets
 
≤ 60%
 
36%
 
≤ 60.0%
 
29.9%
 
Secured Debt to Total Assets
 
≤ 40%
 
4%
 
≤ 45.0%
 
3.3%
 
Consolidated EBITDA to Interest Expense
 
≥ 1.5x
 
6.1x
 
≥ 1.50x
 
4.00x
 
Unencumbered Total Asset Value to Unsecured Debt
 
≥ 150%
 
256%
 
N/A
 
N/A
 
Unsecured Interest Coverage Ratio
 
N/A
 
N/A
 
≥ 1.75x
 
6.26x
 

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

Interest rate swap agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Date
 
Maturity Date
 
Number of Contracts
 
Weighted-Average Interest Pay Rate(1)
 
Fair Value
as of 9/30/18
 
Notional Amount in Effect as of
 
 
 
 
 
9/30/18
 
12/31/18
 
12/31/19
March 29, 2018
 
March 31, 2019
 
8
 
1.16%
 
$
3,732

 
 
$
600,000

 
$
600,000

 
$
—

March 29, 2019
 
March 31, 2020
 
1
 
1.89%
 
 
992


 
—

 
—

 
100,000

Total
 
 
 
 
 
 
 
$
4,724

 
 
$
600,000

 
$
600,000

 
$
100,000


(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 September 30, 2018, as listed under the column heading “Stated Rate” in our summary table of outstanding indebtedness and respective principal payments on the previous page.

 
46

 
 
 
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Definitions and Reconciliations
September 30, 2018
 
 



This section contains additional information for sections throughout this Supplemental Information package and the accompanying Earnings Press Release, as well as explanations and reconciliations 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, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA:
 
Three Months Ended
(Dollars in thousands)
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
Net income
$
219,359

 
$
60,547

 
$
141,518

 
$
45,607

 
$
59,546

 
Interest expense
42,244

 
38,097

 
36,915

 
36,082

 
31,031

 
Income taxes
568

 
1,106

 
940

 
1,398

 
1,305

 
Depreciation and amortization
119,600

 
118,852

 
114,219

 
107,714

 
107,788

 
Stock compensation expense
9,986

 
7,975

 
7,248

 
6,961

 
7,893

 
Loss on early extinguishment of debt
1,122

 
—

 
—

 
2,781

 
—

 
Our share of gain on early extinguishment of debt from unconsolidated real estate JVs
(761
)
 
—

 
—

 
—

 
—

 
Our share of gain on sales of real estate from unconsolidated real estate JVs
(35,678
)
 
—

 
—

 
—

 
(14,106
)
 
Unrealized gains on non-real estate investments
(117,188
)
 
(5,067
)
 
(72,229
)
 
—

 
—

 
Impairment of real estate and non-real estate investments
—

 
6,311

 
—

 
3,805

 
—

 
Adjusted EBITDA
$
239,252

 
$
227,821

 
$
228,611

 
$
204,348

 
$
193,457

 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
341,823

 
$
325,034

 
$
320,139

 
$
298,791

 
$
285,370

 
Realized gains on non real-estate investments
5,015

 
7,463

 
13,332

 
—

 
—

 
Impairment of non-real estate investments
—

 
—

 
—

 
3,805

 
—

 
Revenues, as adjusted(1)
$
346,838

 
$
332,497

 
$
333,471

 
$
302,596

 
$
285,370

 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA margins
69%

 
69%

 
69%

 
68%

 
68%

 

(1)
Revenues, as adjusted, includes realized gains or losses on non-real estate investments. We use revenues, as adjusted, in our calculation of Adjusted EBITDA margin. We believe using revenues, as adjusted, provides a more accurate Adjusted EBITDA margin calculation.
    
We use Adjusted EBITDA as a supplemental performance measure of our 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 land parcels, unrealized gains or losses on non-real estate investments, and impairments.
 

We believe Adjusted EBITDA provides investors with relevant and useful information as it allows investors to evaluate our operating performance without having to account for differences recognized because of real estate investment and disposition decisions, financing decisions, capital structure, capital market transactions, and variances resulting from the volatility of market conditions outside of our control. For example, we exclude gains or losses on the early extinguishment of debt to allow investors to measure our performance independent of our capital structure and indebtedness. 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 real estate investment and disposition decisions. We believe that excluding charges related to share-based compensation and unrealized gains or losses on non-real estate investments facilitates for investors a comparison of our operations across periods without the variances caused by the volatility of the amounts (which depends on market forces outside our control). Adjusted EBITDA has limitations as a measure of our performance. Adjusted EBITDA does not reflect our historical expenditures or future 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 calculated and presented 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. Annual rental revenue is presented using 100% of the annual rental revenue of our consolidated properties and our share of annual rental revenue for our unconsolidated real estate joint ventures. Annual rental revenue per RSF is computed by dividing annual rental revenue by the sum of 100% of the RSF of our consolidated properties and our share of the RSF of properties held in unconsolidated real estate joint ventures. As of September 30, 2018, approximately 97% of our leases (on an RSF basis) were triple net leases, which require 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 our consolidated statements of income.

Cash interest

Cash interest is equal to interest expense calculated in accordance with GAAP plus capitalized interest, less amortization of loan fees and 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.


 
47

 
 
 
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Definitions and Reconciliations (continued)
September 30, 2018
 
 


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 rates 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.

Development, redevelopment, and pre-construction

A key component of our business model is our disciplined allocation of capital to the development and redevelopment of new Class A properties located in collaborative life science and technology campuses in AAA urban innovation clusters. These projects are focused on providing high-quality, generic, and reusable spaces that meet the real estate requirements of, and are reusable by, a wide range of tenants. Upon completion, each value-creation project is expected to generate a significant increase in rental income, net operating income, and cash flows. Our development and redevelopment projects are generally in locations that are highly desirable to high-quality entities, which we believe results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.

Development projects consist of the ground-up development of generic and reusable facilities. Redevelopment projects consist of the permanent change in use of office, warehouse, and shell space into office/laboratory or tech office space. We generally will not commence new development projects for aboveground construction of new Class A office/laboratory and tech office space without first securing significant pre-leasing for such space, except when there is solid market demand for high-quality Class A properties.

Pre-construction activities include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements. The advancement of pre-construction efforts is focused on reducing the time required to deliver projects to prospective tenants. These critical activities add significant value for future ground-up development and are required for the vertical construction of buildings. Ultimately, these projects will provide high-quality facilities and are expected to generate significant revenue and cash flows.

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.
 
Fixed-charge coverage ratio

Fixed-charge coverage ratio is a non-GAAP financial measure representing the ratio of Adjusted EBITDA to fixed charges. We believe 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 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 financial measure calculated and presented in accordance with GAAP, to cash interest and fixed charges:
 
Three Months Ended
(Dollars in thousands)
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Adjusted EBITDA
$
239,252

 
$
227,821

 
$
228,611

 
$
204,348

 
$
193,457

 
 
 
 
 
 
 
 
 
 
Interest expense
$
42,244

 
$
38,097

 
$
36,915

 
$
36,082

 
$
31,031

Capitalized interest
17,431

 
15,527

 
13,360

 
12,897

 
17,092

Amortization of loan fees
(2,734
)
 
(2,593
)
 
(2,543
)
 
(2,571
)
 
(2,840
)
Amortization of debt premiums
614

 
606

 
575

 
639

 
652

Cash interest
57,555

 
51,637

 
48,307

 
47,047

 
45,935

Dividends on preferred stock
1,301

 
1,302

 
1,302

 
1,302

 
1,302

Fixed charges
$
58,856

 
$
52,939

 
$
49,609

 
$
48,349

 
$
47,237

 
 
 
 
 
 
 
 
 
 
Fixed-charge coverage ratio:
 
 
 
 
 
 
 
 
 
– quarter annualized
4.1x

 
4.3x

 
4.6x

 
4.2x

 
4.1x

– trailing 12 months
4.3x

 
4.3x

 
4.3x

 
4.1x

 
4.0x

 
 
 
 
 
 
 
 
 
 

 
48

 
 
 
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Definitions and Reconciliations (continued)
September 30, 2018
 
 


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 funds from operations as an improved measurement tool. 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 real estate investment and disposition decisions, financing decisions, capital structure, capital market transactions, and variances resulting from the volatility of market conditions outside of our control. 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 or losses on 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 and do not necessarily reflect the operating performance of the properties during the corresponding period. The definition of funds from operations in the Nareit White Paper does not include adjustments related to unrealized gains and losses on non-real estate investments, which reflect market conditions outside of our control. Consequently, unrealized gains and losses on non-real estate investments recognized in earnings are included in reported funds from operations as computed in accordance with the Nareit White Paper.

We compute funds from operations, as adjusted, as funds from operations calculated in accordance with the Nareit White Paper excluding significant realized gains or losses on the sale of non-real estate investments, unrealized gains or losses on non-real estate investments, gains or losses on early extinguishment of debt, preferred stock redemption charges, impairments of non-depreciable real estate, 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 alternatives to net income (determined in accordance with GAAP) as indications of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as measures 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. 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.

 
Investments

We hold investments in publicly traded companies and privately held entities primarily involved in the life science and technology industries. On January 1, 2018, we adopted a new accounting standard update (“ASU”) on financial instruments that prospectively changed how we recognize, measure, present, and disclose these investments.

Key differences between prior accounting standards and the new ASU:

Prior to January 1, 2018:
•
Investments in publicly traded companies were presented at fair value in the balance sheet, with changes in fair value classified in other comprehensive income within equity.
•
Investments in privately held entities were accounted for under the cost method of accounting.
•
Gains or losses were recognized in net income upon the sale of an investment.
•
Investments in privately held entities required accounting under the equity method unless our interest in the entity was deemed to be so minor that we had virtually no influence over the entity’s operating and financial policies. Under the equity method of accounting, we recognized our investment initially at cost and adjusted the carrying amount of the investment to recognize our share of the earnings or losses of the investee subsequent to the date of our investment. We had no investments accounted for under the equity method as of December 31, 2017.
•
Investments were evaluated for impairment, with other-than-temporary impairments recognized in net income.

Effective January 1, 2018:
•
Investments in publicly traded companies are presented at fair value in the balance sheet, with changes in fair value for investments in publicly traded companies and investments in privately held entities that report NAV, and observable price changes for investments in privately held entities that do not report NAV, are recognized as unrealized gains or losses and classified as investment income in our consolidated statements of income.
•
Investments in privately held entities without readily determinable fair values previously accounted for under the cost method are accounted for as follows:
•
Investments in privately held entities that report NAV are presented at fair value using NAV as a practical expedient, with changes in fair value recognized in net income.
•
Investments in privately held entities that do not report NAV are carried at cost, adjusted for observable price changes and impairments, with changes recognized in net income.
•
One-time adjustments recognized upon adoption on January 1, 2018:
•
For investments in publicly traded companies, reclassification of cumulative unrealized gains as of December 31, 2017, aggregating $49.8 million, from accumulated other comprehensive income to retained earnings.
•
For investments in privately held entities without readily determinable fair values that were previously accounted for under the cost method:
•
Adjustment of cumulative unrealized gains for investments in privately held entities that report NAV, representing the difference between fair values as of December 31, 2017, using NAV as a practical expedient, and the carrying value of the investments as of December 31, 2017, previously accounted for under the cost method, aggregating $90.8 million, with a corresponding adjustment to retained earnings.
•
No required adjustment for investments in privately held entities that do not report NAV. The ASU requires a prospective transition approach for investments in privately held entities that do not report NAV. The Financial Accounting Standards Board clarified that it would be difficult for entities to determine the last observable transaction price existing prior to the adoption of this ASU. Therefore, unlike our investments in privately held entities that report NAV that were adjusted to reflect fair values upon adoption of the new ASU, our investments in privately held entities that do not report

 
49

 
 
 
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Definitions and Reconciliations (continued)
September 30, 2018
 
 


NAV were not retrospectively adjusted to fair values upon adoption. As such, any initial valuation adjustments made for investments in privately held entities that do not report NAV subsequent to January 1, 2018, as a result of future observable price changes include recognition of cumulative unrealized gains or losses equal to the difference between the carrying basis of the investment and the observable price at the date of remeasurement.
•
Investments in privately held entities continue to be accounted under the equity method unless our interest in the entity was deemed to be so minor that we had virtually no influence over the entity’s operating and financial policies. Under the equity method of accounting, we initially recognize our investment at cost and adjust the carrying amount of the investment to recognize our share of the earnings or losses of the investee subsequent to the date of our investment. We had no investments accounted for under the equity method as of September 30, 2018.

Investment-grade or publicly traded large cap tenants

Represents tenants that are investment-grade rated or publicly traded companies with an average daily market capitalization greater than $10 billion for the 12-months ended September 30, 2018, as reported by Bloomberg Professional Services. In addition, we monitor the credit quality and related material changes of our tenants. Material changes that cause a tenant’s market capitalization to decline below $10 billion, which are not immediately reflected in the 12-month average, may result in their exclusion from this measure.

Items included in net income attributable to Alexandria’s common stockholders

We present a tabular comparison of items, whether gain or loss, that may facilitate a high-level understanding of our results and provide context for the disclosures included in this Supplemental Information, our most recent annual report on Form 10-K, and our subsequent quarterly reports on Form 10-Q. We believe such tabular presentation promotes a better understanding for investors of the corporate-level decisions made and activities performed that significantly affect comparison of our operating results from period to period. We also believe this tabular presentation will supplement for investors an understanding of our disclosures and real estate operating results. Gains or losses on sales of real estate and impairments of held for sale assets are related to corporate-level decisions to dispose of real estate. Gains or losses on early extinguishment of debt and preferred stock redemption charges are related to corporate-level financing decisions focused on our capital structure strategy. Significant realized and unrealized gains or losses on non-real estate investments and impairments of real estate and non-real estate investments are not related to the operating performance of our real estate assets as they result from strategic, corporate-level non-real estate investment decisions and external market conditions. Impairments of non-real estate investments are not related to the operating performance of our real estate as they represent the write-down of a non-real estate investment when its fair value declines below its carrying value due to changes in general market or other conditions outside of our control. Significant items, whether gain or loss, included in the tabular disclosure for current periods are described in further detail in this Supplemental Information.

Joint venture financial information
    
We present components of balance sheet and operating results information related to our joint ventures, which are not presented in accordance with, or intended to be presented 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 cumulative 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 balance sheet and operating results information related to joint ventures do not represent our legal claim to those items. For each entity that we do not wholly own, the joint venture agreement 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 balance sheet and operating results information related to our partially owned entities. Presenting this information provides a perspective not immediately available from consolidated financial statements and one that can supplement an understanding of the joint venture assets, liabilities, revenues, and expenses included in our consolidated results.

The components of balance sheet and operating results 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 for investors 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.


 
50

 
 
 
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Definitions and Reconciliations (continued)
September 30, 2018
 
 


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

Net debt to Adjusted EBITDA and net debt and preferred stock to Adjusted EBITDA are non-GAAP financial measures that we believe are useful to investors as supplemental measures 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 the end of the period. See definition of 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)
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Secured notes payable
 
$
632,792

 
$
776,260

 
$
775,689

 
$
771,061

 
$
1,153,890

Unsecured senior notes payable
 
4,290,906

 
4,289,521

 
3,396,912

 
3,395,804

 
2,801,290

Unsecured senior line of credit
 
413,000

 
—

 
490,000

 
50,000

 
314,000

Unsecured senior bank term loans
 
347,306

 
548,324

 
548,197

 
547,942

 
547,860

Unamortized deferred financing costs
 
33,008

 
33,775

 
27,438

 
29,051

 
27,803

Cash and cash equivalents
 
(204,181
)
 
(287,029
)
 
(221,645
)
 
(254,381
)
 
(118,562
)
Restricted cash
 
(29,699
)
 
(34,812
)
 
(37,337
)
 
(22,805
)
 
(27,713
)
Net debt
 
$
5,483,132

 
$
5,326,039

 
$
4,979,254

 
$
4,516,672

 
$
4,698,568

 
 
 
 
 
 
 
 
 
 
 
Net debt
 
$
5,483,132

 
$
5,326,039

 
$
4,979,254

 
$
4,516,672

 
$
4,698,568

7.00% Series D convertible preferred stock
 
74,386

 
74,386

 
74,386

 
74,386

 
74,386

Net debt and preferred stock
 
$
5,557,518

 
$
5,400,425

 
$
5,053,640

 
$
4,591,058

 
$
4,772,954

 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
– quarter annualized
 
$
957,008

 
$
911,284

 
$
914,444

 
$
817,392

 
$
773,828

– trailing 12 months
 
$
900,032

 
$
854,237

 
$
815,178

 
$
767,508

 
$
728,869

Net debt to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
– quarter annualized
 
5.7
x
 
5.8
x
 
5.4
x
 
5.5
x
 
6.1
x
– trailing 12 months
 
6.1
x
 
6.2
x
 
6.1
x
 
5.9
x
 
6.4
x
Net debt and preferred stock to Adjusted EBITDA:
 
 
 
 
 
 
 
 
– quarter annualized
 
5.8
x
 
5.9
x
 
5.5
x
 
5.6
x
 
6.2
x
– trailing 12 months
 
6.2
x
 
6.3
x
 
6.2
x
 
6.0
x
 
6.5
x


 
Net operating income, net operating income (cash basis), and operating margin

The following table reconciles net income to net operating income and net operating income (cash basis):
 
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands)
 
9/30/18
 
6/30/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Net income
 
$
219,359

 
$
60,547

 
$
45,607

 
$
59,546

 
$
421,424

 
$
148,597

 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated real estate joint ventures
 
(40,718
)
 
(1,090
)
 
(376
)
 
(14,100
)
 
(42,952
)
 
(15,050
)
General and administrative expenses
 
22,660

 
22,939

 
18,910

 
17,636

 
68,020

 
56,099

Interest expense
 
42,244

 
38,097

 
36,082

 
31,031

 
117,256

 
92,563

Depreciation and amortization
 
119,600

 
118,852

 
107,714

 
107,788

 
352,671

 
309,069

Impairment of real estate
 
—

 
6,311

 
—

 
—

 
6,311

 
203

Loss on early extinguishment of debt
 
1,122

 
—

 
2,781

 
—

 
1,122

 
670

Gain on sales of real estate – rental properties
 
—

 
—

 
—

 
—

 
—

 
(270
)
Gain on sales of real estate – land parcels
 
—

 
—

 
—

 
—

 
—

 
(111
)
Investment income
 
(122,203
)
 
(12,530
)
 
—

 
—

 
(220,294
)
 
—

Net operating income
 
242,064

 
233,126

 
210,718

 
201,901

 
703,558

 
591,770

Straight-line rent revenue
 
(20,070
)
 
(23,259
)
 
(33,281
)
 
(20,865
)
 
(75,960
)
 
(74,362
)
Amortization of acquired below-market leases
 
(5,220
)
 
(5,198
)
 
(4,147
)
 
(4,545
)
 
(16,588
)
 
(14,908
)
Net operating income (cash basis)
 
$
216,774

 
$
204,669

 
$
173,290

 
$
176,491

 
$
611,010

 
$
502,500

 
 
 
 
 
 
 
 
 
 
 
 
 
Net operating income (cash basis) – annualized
 
$
867,096

 
$
818,676

 
$
693,160

 
$
705,964

 
$
814,680

 
$
670,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Net operating income (from above)
 
$
242,064

 
$
233,126

 
$
210,718

 
$
201,901

 
$
703,558

 
$
591,770

Revenues
 
$
341,823

 
$
325,034

 
$
298,791

 
$
285,370

 
$
986,996

 
$
829,306

Operating margin
 
71%
 
72%
 
71%
 
71%
 
71%
 
71%

Net operating income is a non-GAAP financial measure calculated as net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding equity in the earnings (losses) of our unconsolidated real estate joint ventures, general and administrative expenses, interest expense, depreciation and amortization, impairment of real estate, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, and investment income. 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 investors to evaluate the operating performance of our consolidated 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 straight-line rent revenue and the amortization of acquired above- and below-market leases.


 
51

 
 
 
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Definitions and Reconciliations (continued)
September 30, 2018
 
 


Further, we believe net operating income is useful to investors as a performance measure for our consolidated properties because, when compared across periods, net operating income reflects trends in occupancy rates, rental rates, and operating costs, which provide a perspective not immediately apparent from net income. 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 net income 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. We also exclude realized and unrealized investment income calculated under a new ASU effective January 1, 2018, which results from investment decisions that occur at the corporate level related to non-real estate investments in publicly traded companies and certain privately held entities. Therefore, we do not consider these activities to be an indication of operating performance of our real estate assets at the property level. 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 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 calculate operating margin as net operating income divided by total revenues.

We believe that in order to facilitate for investors a clear understanding of our operating results, net operating income should be examined in conjunction with net income as presented in our consolidated statements of income. Net operating income should not be considered as an alternative to net income as an indication of our performance, nor as an alternative to cash flows as a measure of our liquidity or our ability to make distributions.

Operating statistics

We present certain operating statistics related to our properties, including number of properties, RSF, occupancy percentage, leasing activity, 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 the number of properties, RSF, occupancy percentage, leasing activity, and contractual lease expirations at 100% for all properties in which we have an investment, including properties owned by our consolidated and unconsolidated real estate joint ventures. For operating metrics based on annual rental rate revenue, see our discussion of annual rental revenue herein.
 
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 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 quarterly or annual period, we analyze the operating performance for all consolidated properties that were fully operating for the entirety of the comparative periods presented, referred to as same properties. We separately present quarterly and year-to-date same property results to align with the interim financial information required by the SEC in our management’s discussion and analysis of our financial condition and results of operations. These same properties are analyzed separately from properties acquired subsequent to the first day in the earliest comparable quarterly or year-to-date period presented, properties that underwent development or redevelopment at any time during the comparative periods, unconsolidated real estate joint ventures, and corporate entities (legal entities performing general and administrative functions), which are excluded from same property results. Additionally, lease termination fees, if any, are excluded from the results of same properties.

The following table reconciles the number of same properties to total properties:
Development –
under construction
 
Properties
 
213 East Grand Avenue
 
1

 
399 Binney Street
 
1

 
279 East Grand Avenue
 
1

 
188 East Blaine Street(1)
 
1

 
 
 
4

 
 
 
 
 
Development – placed into service after January 1, 2017
 
Properties
 
505 Brannan Street
 
1

 
510 Townsend Street
 
1

 
ARE Spectrum
 
3

 
400 Dexter Avenue North
 
1

 
100 Binney Street
 
1

 
 
 
7

 
 
 
 
 
Redevelopment –
under construction
 
Properties
 
9625 Towne Centre Drive
 
1

 
5 Laboratory Drive
 
1

 
9900 Medical Center Drive
 
1

 
266 and 275 Second Avenue
 
2

 
Alexandria PARC
 
4

 
681 Gateway Boulevard
 
1

 
 
 
10

 
 
 
 
 
Acquisitions after
January 1, 2017
 
Properties
 
100 Tech Drive
 
1

 
88 Bluxome Street
 
1

 
701 Gateway Boulevard
 
1

 
960 Industrial Road
 
1

 
1450 Page Mill Road
 
1

 
219 East 42nd Street
 
1

 
4110 Campus Point Court
 
1

 
Summers Ridge Science Park
 
4

 
2301 5th Avenue
 
1

 
9704, 9708, 9712, and 9714 Medical Center Drive
 
4

 
9920 Belward Campus Drive
 
1

 
21 Firstfield Road
 
1

 
50 and 55 West Watkins Mill Road
 
2

 
Other
 
2

 
 
 
22

 
 
 
 
 
Unconsolidated real estate JVs
 
6

 
Properties held for sale
 
1

 
Total properties excluded from same properties
 
50

 
Same properties
 
185

(2) 
Total properties in North America as of September 30, 2018
 
235

 
 
 
 
 
(1)
Formerly 1818 Fairview Avenue East.
(2)
Includes 9880 Campus Point Drive, a building we acquired in 2001, was occupied through January 2018 and subsequently demolished in anticipation of developing a 98,000 RSF Class A office/laboratory building.

 
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Definitions and Reconciliations (continued)
September 30, 2018
 
 


Stabilized occupancy date

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

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 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 those income and expense items that are incurred at the unencumbered property level. 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)
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Unencumbered net operating income
$
213,107

 
$
204,843

 
$
198,599

 
$
181,719

 
$
164,291

Encumbered net operating income
28,957

 
28,283

 
29,769

 
28,999

 
37,610

Total net operating income
$
242,064

 
$
233,126

 
$
228,368

 
$
210,718

 
$
201,901

Unencumbered net operating income as a percentage of total net operating income
88%

 
88%

 
87%

 
86%

 
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 loan fees, amortization of debt premiums (discounts), 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 and premium (discount) amortization.
 
The following table presents the weighted-average interest rate for capitalization of interest:
 
Three Months Ended
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Weighted-average interest rate for capitalization of interest
4.06%
 
3.92%
 
3.91%
 
3.89%
 
3.96%

Weighted-average shares of common stock outstanding – diluted

We enter into capital market transactions from time to time to fund acquisitions, fund construction of our highly leased development and redevelopment projects, and for general working capital purposes. In March 2017 and January 2018, we entered into forward equity sales agreements (“Forward Agreements”) to sell shares of our common stock. We are required to consider the potential dilutive effect of our forward equity sales agreements under the treasury stock method while the forward equity sales agreements are outstanding.

We also consider the effect of assumed conversion of our outstanding 7.00% Series D cumulative convertible preferred stock (“Series D Preferred Stock”) when determining potentially dilutive incremental shares to our common stock. When calculating the assumed conversion, we add back to net income the dividends paid on our Series D Preferred Stock to the numerator and then include additional common shares assumed to have been issued (as displayed in the table below) to the denominator of the per share calculation. The effect of the assumed conversion is considered separately for our per share calculations of net income; funds from operations, computed in accordance with the definition in the Nareit White Paper; and funds from operations, as adjusted. Our Series D Preferred Stock is dilutive and assumed to be converted when quarterly basic EPS, funds from operations, or funds from operations, as adjusted exceeds approximately $1.75 per share in a quarter, subject to conversion ratio adjustments. The effect of the assumed conversion is included when it is dilutive on a per share basis.

The weighted-average shares of common stock outstanding used in calculating EPS – diluted, FFO per share – diluted, and FFO per share – diluted, as adjusted, during each period is calculated as follows:
 
Three Months Ended
 
Nine Months Ended
(In thousands)
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic shares for EPS
104,179

 
101,881

 
99,855

 
95,138

 
92,598

 
101,991

 
90,336

Forward Agreements
462

 
355

 
270

 
776

 
698

 
363

 
430

Series D Preferred Stock
744

 
—

 
—

 
—

 
—

 
—

 
—

Diluted for EPS
105,385

 
102,236

 
100,125

 
95,914

 
93,296

 
102,354

 
90,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic shares for EPS
104,179

 
101,881

 
99,855

 
95,138

 
92,598

 
101,991

 
90,336

Forward Agreements
462

 
355

 
270

 
776

 
698

 
363

 
430

Series D Preferred Stock
744

 
—

 
741

 
—

 
—

 
743

 
—

Diluted for FFO
105,385

 
102,236

 
100,866

 
95,914

 
93,296

 
103,097

 
90,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic shares for EPS
104,179

 
101,881

 
99,855

 
95,138

 
92,598

 
101,991

 
90,336

Forward Agreements
462

 
355

 
270

 
776

 
698

 
363

 
430

Series D Preferred Stock
—

 
—

 
—

 
—

 
—

 
—

 
—

Diluted for FFO, as adjusted
104,641

 
102,236

 
100,125

 
95,914

 
93,296

 
102,354

 
90,766


 
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