Good day and welcome everyone to the Alexandria Real Estate Equities Incorporated second quarter 2010 results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Rhonda Chiger.

Thank you everyone. This conference call contains forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 as amended and Section 21-E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include without limitation statements regarding our 2010 earnings per share diluted attributable to ARE's common stockholders, 2010 FFO per share diluted attributable to ARE's common stockholders, the business plans of certain tenants and the expected impact of the retirement or conversion of our unsecured convertible notes. Our actual results may differ materially from those projected in such forward-looking statements. Factors that might cause such a difference include, without limitation, our failure to obtain capital, debt construction financing and/or equity or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, our failure to successfully operate or lease acquired properties, decreased rental rates or increased vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, general and local economic conditions and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission. Now, I would like to turn the call over to Mr. Joel Marcus.

Thank you, Rhonda. Welcome to the second quarter 2010 conference call. Let me start off with some macro comments quickly. Those of you who read Alan Abelson's column each Saturday in Barron's will remember about a week or two ago, he indicated that despite the periodic winning street, we're still in the grip of the secular bear market that has years to run. So in light of this cautious business climate, it's nice to know that contrary to significant negative budgetary spending at the fed and the state level, this is not translated into a measurable dip in R&D investment by the broad and diverse life science sector. Despite the deep recession, pharma and bio have spent last year's $65.3 billion in R&D compared to $1.5 billion from 2008. Our number two client tenant, Roche, ranked number one with over $9 billion of R&D spending. Our number 10 client tenant, Pfizer, was number two at $7.85 billion. Our number one tenant, Novartis, was number three with $7.47 billion. So we're very pleased about that. We also have not had a space go vacant due to pharma M&A, and we're very thankful for that, given our adjacency locations. Among a number of critical challenges coming up is the growing clinical trial complexity, challenging drug development and obviously the need to contain rising cost. And we think there is a big opportunity where ARE will focus its platform on this significant emerging area. Another interesting opportunity that has come to us relates to something called the Cures Acceleration Network. It's a newly formed translational research program at the NIH, designed to bridge discovery from the lab to clinical testing. $500 million have been set aside for approximately 20 drug development programs and another 20 projects using compound that companies have abandoned, and…

Thanks, Joel. Let me jump right into our solid operating results, balance sheet matters, including the successful tender offer we completed, sources and uses of capital and lastly our 2010 guidance. Our strategy and business model continues to deliver stable and consistent operating results. Our solid operating results are attributable to our ongoing diligent focus on strategic adjacency locations to key research institutions and key life science cluster markets, ownership of the highest-quality laboratory properties in location, quality, design and efficiency of laboratory facilities, continuous development of the most talented and highly experienced real estate and laboratory facility personnel located in each of the important life science across their submarkets, a very unique life science underwriting team and our favorable restructure. As a reminder, 97% of our leases provide for the recovery of substantially all of operating expenses, consisting of 89% triple net leases, with an additional 8% of our leases providing for the recovery of the majority of operating expenses. 94% of our leases provide for annual rent escalations generally in the 3% to 3.5% range. And approximately 92% of our leases provide for the recovery of major capital expenditures. Our average occupancy percentage for December 31 of each year from 1998 through 2009 and including June 30, 2010, was over 95%. We are through the first half of 2010 and on our way to our 12th year of positive increases in rental rates on new and renewal leases for previously leased space and our 48th consecutive quarter of positive same property results, again up 2.5% on a cash basis for the quarter. Let me briefly mention that our annualized leasing activity for 2010 approximates 2.1 million square feet, representing a run rate of over 1 million square feet for the last two quarters of 2010. Compare this run…

Operator, if we could open it up for Q&A please?

(Operator Instructions) Our first question comes from Anthony Paolone from JPMorgan.

My first question is for Joel. Your tenant roster is very strong from a credit point of view, and you guys seem to have come up as winners in a lot of the M&A in your space. But can you just help tie together for us just how the future looks, if you continue to see a lot of M&A with your tenants, just in terms of, can we expect as much just total demand for lab space over the next five years compared to say, the last five to ten years?

Thanks Tony, I think it's an important and relevant question, one we've been looking hard at. I think you are going to see far less M&A at the top level, the top 15 big pharmas, all of which actually are clients of ours. And you are going to see more of what you see today I think, at least rumor and some announcements out that Sanofi is looking potentially to bear hug or buy Genzyme. So I think you are going to see a transformation of big pharma, who have great balance sheets, lots of capital and they are re-building significantly their pipelines. They will be, I think actually over time looking to expand in the critical adjacency locations. And that will also be, not only at the research level but on the product sales level, looking at buying companies intact, keeping them operating for sales from significant products. So I think you are going to see a melding of some of the big biotechs and some of the big pharmas. But I would expect to see a continual increase. I can't predict the rate at what that increase will be. We just heard, for example that Roche, after they have essentially integrated the Genentech operation are now looking at their future expansion plans. There is always a period of time; sometimes its a few months, sometimes it's longer after acquisition to look at how they rationalize themselves. I think where you are going to see significant cutbacks, a lot of sales of remote manufacturing facilities, a lot of ending of leases of sales and marketing offices to firm those down. There'll be some, obviously research changes and cutbacks. There will be significant ones on main campuses, but we don't see any trend toward these companies cutting back major research…

I just have a few smaller ones after that. In the redevelopment pipeline you have a couple of projects in Eastern Mass coming in later this year where there doesn't appear to be any activity at this point. Can you just give us a sense as to what's going on there?

There are three assets in total. The first one is 33,000 square feet, where we're negotiating on that space today. So we're in pretty good shape there. There are two other projects, a 113,000 square foot facility that continues through the redevelopment process, but we're still at the marketing stage, from the disclosures obviously, and working through very early, early opportunities, but nothing beyond that that gives us confidence to show it as negotiating or committed at the moment. Lastly, there is a 30,000 square foot building, multi-tenant arrangement, which I think will be successful, resolving in the near term as well, just given its location and size requirements that I think will nicely fit the market requirements in the coming quarters.

Yes, and I think the other thing to keep in mind Tony, especially on the 113,000, this is somewhat of more suburban oriented, it's a cheaper facility, it has an ability to accommodate kind of a broad range of users. And so we're expanding our search for users there beyond just pure R&D life science. So we hope hopefully to have some takers on that.

And last question, you felt like year-to-date you've done 681,000 square feet of new and renewal leasing at $4.83 a square foot of TIs and leasing commissions. What is the range of CapEx that you spend when you do this type of level of leasing? Are there a lot of ones where you don't spend any money and a bunch that you spend $20, or is it all pretty tight in that range?

Actually, I'd say there is a few that we don't spend much money on at all. On a few that we have some CapEx, it's fairly nominal, it's not much above that. The only way you can average that consistently is, you don't have any major CapEx going into re-tenanting on your leasing. And you can see on page 42, we have a historical chart that highlights over a five-year average for CapEx, for TIs and leasing costs both on a re-tenanted basis and on a renewal basis, both of which average anywhere from $3 to $5, depending on what category you're looking at.

I was with somebody, I think it was last week in one of the markets, and they actually commented to me, which was pretty interesting, a publicly traded REIT that their space, when it rolls, they pretty much have to demo everything and redo it almost every time. It's not our product type, it's a different type. But they were kind of marveling because they had one lab asset in their portfolio, and they were marveling that they wanted some advice on re-leasing it to a particular tenant. And they were amazed that they could utilize virtually all of the infrastructure for re-leasing. It's not their focus, but we're looking at it as a possible acquisition obviously; but kind of interesting.

Our next question comes from Suzanne Kim from Credit Suisse.

I was wondering about monetizing assets as a way to replenish the pipeline for these big pharma companies. Are you seeing a trend in that as they are trying to replenish their pipeline?

Yes, I mean I think that is the game plan. And they're doing it by, I think there's really three major ways, there's probably many more, but the three major ways, one is refocusing their R&D out of kind of these silo campuses in locations that are pretty remote and not interactive. And each of them, each of the top 15, all of which are our clients have made consorted efforts to do that. Novartis is maybe the best example, got out of Basel, Switzerland for their R&D headquarters and moved into Cambridge a couple of years ago. And quite a number have done something very similar either in lots or in pieces, because they know that being at the touch point of innovation is critical. If you go back to the quote I had in the earlier part of my formal presentation by the Bayer site head, it was exactly that thing. Bayer right now owns a big campus in Richmond on the East Bay which is north side of the East Bay, they own it. It's at some cost, but they decided they can't interact from that standpoint because it's very remote and it's just not an interactive location; that's what brought them to Mission Bay. So that's number one for replenishment. Number two is acquisitions by buying diversified businesses. Again Novartis, this year or last year, maybe I can't remember, bought Alcon Eyecare for about $40 billion. They believe that the ophthalmic business, which I think is true given the ageing and the population, is going to be a huge home run. And that was a big diversification, so that's going to drive revenues and pipeline of products. And then the third is more a classic M&A buying either a smaller pharma or a biotech or somebody else in a product or service area that can help, again, continue to bolster revenues. Those are the three major ways they are doing it.

Are you seeing a trend where you're seeing much more of this occurring, though, in the past year or two, or is it just a steady pace?

Well, I think it depends. Obviously, over the past year or two Pfizer did buy Wyeth, which was pretty huge, but obviously with the debacle in the credit and financial markets I think you saw a lot less of that. So that was not so available obviously, either using cash or stock as currency. I don't think it's going at be at any torrid pace, but I think you'll see it selectively and strategically from time to time. And some companies, that's not their way of going forward, but some are pretty important. I mean Pfizer bought Wyeth essentially to buy a biological business because they didn't have one, and they had a pretty big patent cliff coming up. So for them it was a pretty smart acquisition.

I was actually wondering in terms of the number of product coming online available for acquisition opportunities.

Yes, the FDA approves about 25 to 30 products a year. So depending upon who's got those products in the pipeline, certainly pharma could look at those as a natural opportunity for acquisitions. But remember, it's not all about acquisitions. Over the past two years, I think I commented, partnering transactions doubled from about $20 billion to almost $40 billion from '08 to '09, but big pharmas are very aggressive these days, both at the venture level and at partnering their products with biotech companies. So that's actually almost a preferred way more than M&A.

Just a quick question on operations. Maybe I did my math wrong, but it seems that you need to do a little bit more than what you've done in the first quarter and the second quarter in terms of FFO. It was 109 at the first quarter, 110. It seems in order to meet the midpoint of $3.57, you needed $1.13. I'm wondering if the catalyst is the redevelopments of going online or what's sort of driving your outlook in the next few quarters.

Nothing has changed in our outlook. Our guidance has held strong in the sense that we think we can convey and that FFO would grow through the year. And on the back half of this year, we have a number of projects both on the redevelopment and development side coming online. You can tell by our in-service days. And our leasing status, we're in pretty good shape. As an example, even just the New York project, we have FFO contributions starting in the third quarter, with Lilly lease coming online. And the remainder of that space being although leased, near the end of the year, not a significant amount of FFO contribution this year just on that one particular project, but I think you'll get almost a full quarter's worth coming on in Q1 of '11 for that one project in New York. And you have same-store performance being positive this year, leasing activity being positive, which is also contributing to results as well.

We will take the next question from (Jamie Sullivan) from Bank of America/Merrill Lynch.

I was hoping you could help us frame the magnitude and timing of some of these external developments, I guess first the campus program, and then just as we think about the 38% in process at East River, kind of handicapping the likelihood of some of those.

Sure, Jamie. I think when it comes to the university and institutional on-campus or immediately off-campus redevelopment and development, that's not only development, but it's looking at buildings that exist for potential redevelopment. Those are somewhat of a long-term type of program, because they involve some pretty sophisticated financing issues on campus that may be under non-profit or tax-exempt bond indenture. They also involve if you have state universities with fairly complex approval processes and just the whole negotiation cycle and so forth. So we think it's a very important program. We think it's a long-term multiyear program. I was just at one of lead campus that is looking at doing some pretty major things, again given the way the market has reacted. But these things take a lot of time in their relationship building and they're focused on particular sites of buildings that exist. So I would say don't look at those as short term, but those are really long opportunities. But we think they are important, because they represent great opportunities for high-quality tenants and very long-term leases. When you move to East river, I think I have a fairly comfortable view of always timing is always a little hard. I remember when we were negotiating with Eli Lilly, I think that negotiation took something like four to six months, but it was very friendly. But it's a very complex set of negotiations left even I mean that lease is a complex document, work letter and so forth. But the programming and the test bit for the state and the sophistication of the state takes an enormous amount of time which you don't really have in say more generic office or industrial. But I think as I said I believe there is never any assurance until it's done. But I believe we have a very high probability of success at stabilizing East River by year end. And I think each of the in process transaction that I alluded to, I think I have a reasonably good chance of happening.

So a follow-up on the campus or university program, it sounds like it will be more fee related.

I would say probably not so much that. You have to remember, some of these are ground leases some may be fee development, some may be off-campus joint venture arrangement. They are pretty sophisticated kind of things. I think fee development could emerge, that certainly would be of interest to us, asset management would be as well. So I see a number of different revenue sources coming from these relationships and once you have a broad relationship with an entity, you can imagine what the size of some of these campuses. It's pretty valuable. But we will obviously need to bring our test tube and our model forward and say, "Hey here's a real one. This has happened, and this is how it's planned, played out." And we hope to do that in the future for sure. Because we do think it's a big future opportunity for the company.

And then back to the M&A topic, in terms of, when you think about Genzyme's real estate footprint, what do you see playing out there, to the extent there is a transaction?

Yes. I think if Sanofi or somebody else was to buy them, I don't see that they are going to change a whole lot of things, I mean I think they may consider melding. I actually know Chris Viehbacher reasonably well. I've they have considered moving worldwide research from France to Cambridge. That hasn't happened yet, but if for some reason this happens, that might be an instigation point to try to that. And then they would look at combining their research with Genzyme's. It isn't really duplicative or overlapping. And the administrative side isn't particularly huge. Buying it actually would be a good fit, and I think if that happened it may be a growth point for more Sanofi in this country.

The next comes from Michael Bilerman from Citi.

Hi, it's Quentin Velleley here. I'm with Mark Owen and Mark Montandon. Just in relation to some of the land sales, it's good to see you're making some progress on that. I'm just wondering if you could give us some understanding of what the scale of the sales might be, and what the timing is likely to be, as well.

When you say style, meaning the nature of the transaction or the scale?

No, size.

I am not sure I want to characterize it other than what dean said we see some transactions that could be for a couple of million dollars and we've got several that are their way through processes to something that could be north of $100 million dollars. I don't think we want to be more specific than that given; certain things are actually in the market today. But I think it's significant and important and the nature of the transaction probably most will be pure ramp sales, but we've opened up the possibility of contributions. But I think by and large you'll see more out right sales. Beyond that I am not sure we can characterize things. If you ask about timing, timing is always difficult to say, but I would think that we would have one significant transaction hopefully accomplished by year end, and that would be important as Dean said, both from the standpoint of significant capital and also very importantly from the standpoint of establishing really a data point, an important data point for valuation of real estate because had the market not really crashed and we had not gone through these past two years, we wouldn't have this situation. But I think today, a lot of people are really undecided about where land values really ought to be, given the overall market and the macro economy. But I think you will see as Dean said, and hopefully you will see some very positive data points there.

And if it's going to happen towards the end of the year, there's obviously no benefit you're getting into guidance from selling non-increasing assets and de-leveraging in that respect?

Yes, from a guidance perspective nothing significant, Michael.

Looking at the lease roll schedule, page 30 of the supp, it looks like your remaining expiring leases for 2010 actually went up by over 30,000 square feet, and the amount of leased space that you have actually went down sequentially by 75,000 square feet. And the month-to-month doesn't look like it changed that much at all. So what happened? Did the leases that you thought you had signed fall out of bed?

No. That's actually not possible to occur because, once they are signed, you can't get out of them. But what happens, the lease column; this is page 30 of the supplemental, for those that don't have it in front of them quite yet, the lease column for 2010 and 2011, which breaks down the categories of the rolls. The lease column represents a lease that was executed post the reporting period, so in this case post June 30. Or, it could also be a combination of leases that are rolling later in the year that have been executed with a new tenant taking the space. So, as that lease is then delivered and it's no longer expiring, in other words, that portion that you commented on in the lease category, Michael, was delivered in the quarter, in the second quarter. So it changes as that activity is actually delivered.

Then, how does the remaining expiring leases go up from 228,000 square feet to 261,000, square feet?

Yes, you might have missed my comment, or in the early part of my commentary. But really it represents new leases that were executed in the quarter, short-term in nature. One example I gave was a month-to-month tenant, which has actually been in the portfolio for quite some time, but they have been on a month-to-month lease for a number of quarters, executed a nine month lease. It's still short-term in nature, so it ended up being an expiring lease that went from a month-to-month on an expected renewal to an expiring lease in the 261,000 square feet. So it's a combination of several short-term leases that were executed, and I mentioned earlier in my comments that we expect most of those to renew again on a short-term to medium-term basis.

So even though your month-to-month stayed flat, it actually went down by 2000 square feet?

Correct.

You are saying there's some things that would have caused a bigger differential?

Correct, some month-to-months moved out, and some new ones came in.

Just last thing, on joint ventures, Joel. It's been probably three or four years we've heard about joint ventures and activity in discussions and plans. And nothing has occurred. So this time, when you're talking about joint ventures, are we closer to fruition, to that happening in terms of raising capital? Or, how should we take those comments?

Well I think if you hearken back to kind of '06, '07 timeframe we had actually two and I think we reported back quite a number. I don't know may be two years before that financial debacle, we had two term sheets for the East River science project. We liked them both, but one of which we really liked is, we really like the parties and we were going forward with that we have negotiated the terms and conditions. And the big issue there was construction financing, and so we were headed into that phase of it. This was September of '08. Obviously then Lehman declared bankruptcy and all hell broke loose. So the fact that that joint venture fall apart, I guess we declare Force Majeure or something like that. That's done and then as it turns out we were successful with Lilly lease and there is no reason for construction financing any more. We are ready to deliver the building here over the coming quarters etcetera. But rather than a joint venture like that which was really a third party money joint venture, we've had some pretty detailed discussions I think on two types. One would be on operating or value add projects where a money source would team with us to do a series of projects. And I think, I can't give you time and frame and so whether it will happen or not. But that's something we're pretty actively involved with. And then the second one would be a venture that would be with a user that I've mentioned before. We would put up potentially a land parcel and the user who had capital and a very low cost of capital; we'll put up capital to build the building. We would do that and essentially have kind of a JV if you will, build to suit. Don't know how those will emerge over time, that's a kind of characterizations of discussions that we have to help move our future efforts ahead. So I'd say stay tuned but there is no guarantees there. But they certainly could emerge.

Just a quick guidance question as well. With the development deliveries that are coming in over the next couple quarters, wondering if you are including any accretion to the bottom line in your guidance from those, or if it's just sort of a net neutral phenomenon for this year.

Sure, the projects typically are always accretive both development and redevelopment side. The difference between the churn on your investment and the capitalization on your investment I think is what you're getting at, and there is a positive spread on each of the projects.

Even with the planned lease up upon delivery and the timing of those deliveries for 2010, I'm saying?

No, every asset that is delivered with cash flows will generate a spread to FFO. Meaning the capitalization obviously is embedded in FFO and your yield on your space as you deliver it, I can't think of a circumstance at the moment, where it's short of the contribution to FFO while it is under construction. So yes, in every circumstance, as it's delivered and placed into service, you'll see a positive spread and a boost to FFO.

And have you given any guidance, specific numbers behind what that estimate is for 2010, just on the development deliveries?

I haven't broken it down quarter-to-quarter, but I can tell you the development pipeline in total, upon stabilization, will probably generate something north of $45 million of NOI. The redevelopments could generate probably somewhere around low $20 million of NOI contribution. That's an aggregate upon delivery of all the product.

The next question comes from Sheila McGrath from KBW.

Most of my questions have been answered. But, Joel, maybe you could just touch quickly on the entitlement in Cambridge. Do you think that you will be selling land parcels there? And aside from that, when do you think we'll see some activity? Is that a really long-term project, or do you think something will happen there within the next 12 months?

So we have obviously, five buildings, a total of about 1.7 million square feet along the East Cambridge, Binney Street corridor. There is one of the parcels which is at 225 Binney, which could build about 338,000 square feet isn't immediately connected. It's kind of separated by a full street, and set of buildings. That could be one that could easily be sold if a user wanted it. It also is in an area where there are a number of datacenters. So that's been an area of interest for us potentially. I think the others cluster very, very well, nicely, and they're all kind of adjoining, almost kitty-corner across the single intersection. As I said, we have ongoing discussions with a number of users. And I would say this is not particularly long-term. And we're also working on, pretty intensively, on site planning and design of each of the buildings, so that if we have a tenant, we'll be ready to go sooner than if we started from scratch. So I would say, yes, they're more in the short-to-medium term than the long-term push.

And you don't envision selling any of the land there?

Well, the one in 225 Binney, which is separate from the cluster of the other four buildings, which is 338,000 square feet of entitlement, that would be one. We haven't put it up for sale. And we had some discussion. That would be one that could easily be carved off. We don't currently have any instant plan. So like market it like that, but in talking to potential tenants, if somebody was interested, we clearly would look at that as an alternative for sure.

And then on East River, stabilization is still kind of targeted by first quarter 2011? Is that right?

Well, I think originally, our internal numbers were three years from opening, which is September. But I think we're probably two years ahead of that. So I would say it'll be delivered sequentially as tenants take down space. But it'll be through probably the end of this year and through the first quarter or two of 2011. But Lilly will start to move in next month. And the restaurant will, the conference center will, we've got the first small tenant on our two lab space, or as will. And then I've given you kind of an update on where we are on other negotiations. And most of the negotiations on the two floors of built-up space, the larger one is shelf space, so we could deliver that pretty quickly on other larger space. So the answer is yes, with luck, we may be able to do it even sooner than we're planning.

The next question comes from Will Marks from JMP Securities.

You had talked about some income from developments. Can you clarify that a little bit, and over what time period is that? And I think you gave the segments of the development that it refers to?

Was that the discussion on on-campus or off-campus university and institutional discussions?

It was a couple of questions ago, you gave a $20 million NOI line for one and…

Sorry, Will, that was my comment. What I was referring to was when I think Quentin had asked the question about NOI contribution from developments and redevelopments. What I was referencing on the north of $20 million was NOI contribution estimates for the entire redevelopment program, or the assets that are under redevelopment today.

Okay, and just efforts to value that or show some sort of just kind of value. Any other data you got, Joel, you mentioned briefly about land. Hopefully, there will be some data points soon. Is there anything else that you can help us with or provide us with that would help value the property that is not yet generating rent, such as asset trades?

On our anticipated land sales, Will?

Yes, either anticipated land sales, or just deals that you've heard of in the market, properties that have traded hands and if you can provide any cap rate information. I know they have a lot.

Yes, not that I would say that are comparable to the average asset or property in our portfolio today. And that's why our comment earlier about the future sales of a few of our parcels being significant with significant gains will, I think provide a real nice data point, real relevant to our landholdings. And hopefully help the investment community make reasonable and conservative assumptions to value our landholdings. But on these stabilized side, we haven't seen anything that would be a real good comp recently.

The next question comes from John Stewart from Green Street Advisors.

Can you please give us a quick update on your international operations and plans?

I would say we're really more focused domestically. We have a building in South China that we are getting very close to completing, that will go to market either for lease or for sale probably, this quarter, which is third quarter. And we will probably extricate ourselves from that location. And then we have two buildings that we are working on, probably getting close over the next couple of quarters to finishing shell completion and we have negotiations ongoing with several tenants to take space in those buildings and that's in northern China. Beyond that I would say, at this point we don't have anything material going on.

How about in India?

Well, we're working to look at opportunities in India, but India is a long term opportunity set that we are interested in all of Asia actually. But, I'd say at this point nothing material to report.

Are there any plans to replace Jim Richardson at any point?

He's already been replaced, but he's actually very actively working with the company in a number of ways, so he's very hands on. But Peter Moglia has actually stepped into his duties and responsibilities as Chief Investment Officer.

Keep in mind, Jim is still on our Board of Directors, he's still a member of the Board. And he is still a consultant to the company.

I probably talk to him every single day.

Sir, at this time, we have no further questions.

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