Welcome to the Alexandria Real Estate Equities, Inc. Third Quarter 2014 Earnings Conference Call. My name is Matt and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now like to turn the call over to Rhonda Chiger. Ms. Chiger, you may begin.

Thank you and good afternoon. This conference call contains forward-looking statements within the meaning of Federal securities laws. Actual results may differ materially from those projections in forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements as contained in the Company's Form 10-K, Annual Report and other periodic reports filed with the Securities and Exchange Commission. And now, I would like to turn the call over to Mr. Joel Marcus. Please go ahead.

Thanks, Rhonda, and welcome everybody to the third quarter call. With me today are Dean, Steve, Peter, Tom and Dan. So we've got a full house here. We are pleased to report the third quarter FFO of $1.21 a share and an increase in our narrowed guidance of $4.79 to $4.81, FFO up over 14% from third quarter of '13 I think characterized by strong demand as well as strength in our core operations. And I think the key to the success this year has clearly been our platform which is our Class A facilities located in our collaborative science and technology campuses and the best urban innovation clusters we've certainly benefited significantly from that. I think if you think about Alexandria at this point in time, maybe 10 kind of key strengths come to mind. First of all very strong core operations across all key metrics as set forth on Page 1 of the press release and accelerating FFO growth into 2015. Two, we've got 2.3 million square feet in current value creation development or redevelopment projects, 85% leased or in negotiations, Page 29 of the sup, I think this is a great testament to the teams in each of our markets, plus an additional approximately 1.8 million square feet in near term value creation development projects, virtually all of which are under active negotiations, again Page 29 of the sup. I think what's also important to note is the average initial cash stabilized yield generated from about 6.4 to 8.3 in value creation substantially exceed our implied cap rate base cost to capital, resulting in strong profit margins over the coming several years. You can take a look at Pages 30 and 34 for those updates. ARE clearly owns the best science and tech campuses in our urban…

Sure. Thanks, Joel. So we had one notable Life Science trade to report in the third quarter which occurred in the Route 128 quarter at the Greater Boston region where GI Partners a private equity investor based in San Francisco purchased 850 Winter Street from Marcus Partners for a 6.3% cap rate. The price per square foot for this suburban asset was $404. The other notable trade involving Boston was BXP's sale of a 45% interest in two Boston and one New York City office buildings to Norges for what ISI calculated to be a 3.8% cap rate. This rate was noted by Green Street when they increase their NAV to $91.75 per share on October 1st. The Bay area continued to be extremely hot in the third quarter with 989 Market, 650 California, 50 BL and 60 Spear Street trading separately at a weighted average cap rate of 4.08% and a healthy $621 per square foot. In Seattle, 500 BL Avenue in South Lake Union traded at a 5.71% cap rate. The property is anchored by tech startups space provider WeWork. The buyer was Trinity Capital led by former speaker executive Richard Leider. A number of Seattle Office assets have hit the market this quarter and pricing guidance has been in the low to mid 5s as owners like Wolk Insurance, Brookfield look to capitalize on a diverse pool of buyers in the market including foreign funds German and Hong Kong based. Domestic funds such as Invesco, private equity investor GI Partners and a number of other public and private REITs. A number of these investors were bidders in life science asset 401 Terry purchased by Kilroy in March, which had a weak tenant credit anchor. The trend of cap rate compression is continued through the third quarter due…

Good afternoon, everyone. I’d like to take a step back today as we head into the final months of the year and frame the drivers for what has been an exceptional year for ARE's performance and the unique urban and science and technology clusters in which we operate. One, the deep and broad based demand in the critical science and technology sectors; two, the significant supply constraints in ARE’s highly desirable urban innovation clusters; and three, the rental rate strength and pricing power in those sub-markets. These drivers have contributed to strong core performance again this quarter and year-to-date as we reported cash and GAAP increases of 6.2% and 14.1% year-to-date and 5.6% and 18.6% respectively this past quarter for renewals and releasing of space as well as historically high occupancy levels of 97.3% for North American operating properties. Very powerful global economic forces are intensifying demand for ARE's Class A product in its urban innovation clusters as they possess unique and mission critical attributes that simply cannot be replicated in other locations. Against the significant wave of demand is a set of political and geographic factors that are constraining supply. The ability to aggregate and deliver new product in urban settings is a very complicated and politically charged endeavor as well as the imperative for high quality design, technically capable and creative collaborative work environments. These two powerful forces, significant demand and constrained supply have created pricing power in the market. Alexandria's client tenants have therefore been keen to renew early to ensure stability of operations and more importantly, to seek trusted and long-term partnerships as they seek to establish unique and high quality urban campuses. A long term lease and joint venture between ARE and Uber has created a new paradigm and clearly illustrates the desirability of the…

Thanks, Steve. Dean Shigenaga here guys. Good afternoon. I have got three important topics I want to cover. First, I will provide an update on our capital strategy and our ability to continue with the delivery of strong growth and FFO per share and then asset value. Second, I will provide an update on the positive impact of accelerating demand. And third, I will provide a summary of key guidance items for 2014, a few important thoughts for 2015 and our confidence in our ability to deliver solid growth in cash flows, net asset value and FFO per share from our Class A buildings and land parcels located in urban innovation clusters. First on our capital strategy. Our key capital matters for 2014 are substantially complete. In July, we completed our $700 million unsecured bond offering with weighted average interest rate of 3.5% and a term of 9.6 years. We updated our targeted sales for 2014 to a midpoint of 120 million, down 75 million from our prior guidance. And we have about 83 million of dispositions under contract and expect to identify additional sales in 2015. I will come back to this topic in a minute. Moving to leverage. Debt to adjusted EBITDA was 7.2 times as of the third quarter and forecasted to be 7.1 times by the end of the year based on significant growth in EBITDA and targeted dispositions of 83 million, both of which offset our estimated construction spend for the fourth quarter. Also, significant growth in EBITDA continues into 2015 and we will keep leverage within a reasonable range as we deliver highly leased projects and commence new development projects. Lastly, we expect leverage to improve towards the target range of approximately 6.5 times as pre-lease developments deliver significant growth in revenue, NOI and…

If we could go to Q&A, operator?

Certainly. (Operator Instructions) At this time we will take a question from Emmanuel Korchman with Citi.

Dean or Joe, does common equity play a part in your capital strategy at all?

Well as we've said earlier, it certainly doesn't for this year. And based on I think our comments to date and we will certainly give you a full detailed business plan update on December 3rd. Our goal would be to try to eliminate or minimize any common equity for next year based on the factors we talk about. Land sales and recycling of assets together with clearly cash flow and growth in EBITDA. So that we hope to kind of do what we did this year if possible.

You spoke earlier about strategic optionality. You had 50, 60, 100 planned to be in a JV. Now it's wholly owned unless it gets, unless leasing is already expected to be and then it will be back into the JV. How do sort of a -- how does a partner think about that given sort of the unsurety of leasing and what they will be coming into and also if you do it at 100% now, is there a potential for that to become a JV in the future?

When we announced the intent to go down the JV path last year fourth quarter, we had no tenants in hand for 50, 60 or 100. We thought it would be prudent to make a sale of less than a half interest in that set of parcels. It certainly would help us in a variety of ways and we didn't know how long the leasing would take on that. And we did one-on-ones with more than I think 15 high quality joint venture partners. I don’t think there was a single one of which said we’re not interest. We ended up boiling that down to a handful and then ultimately one and reached the term sheet in the – or at least a general term sheet in June. But during the summer months when the kind Tsunami of demand reared its head and that's what Life Science and tech in Cambridge, it was pretty clear to us that if we could -- again the tradeoff being if we could take advantage of this very unusual and extraordinary demand in the market versus the desire to joint venture, we would do that. But we clearly want to maintain flexibility. And if the lead joint venture partner were we to go back to them many time decided not to, we know there is a handful of other high quality partners who would covet being our partner with this land. This has got to be ground zero land in the best certainly life science market and one of the best sub markets in the entire country, if not world and so we are not too worried about that. So I am sorry if I didn't, what other part of that question didn't I cover.

If it would potentially become a JV in the future once they…

I think if they turned out that we are not able to sign substantially all of the demand that we are getting at the moment, we certainly would look to go back to a joint venture. And, as I said I think, there are numerous partners that would be willing to go forward with us.

I think that if we weren't successful in 100% leasing these projects like we expect to do, then a joint venture partner’s hurdle rates will make more sense for the risk profile that we would be bringing back to them. I mean right now, with the type of returns that they are looking for and we are providing very little risk, it is not a big match. So I think we'd be returning an opportunity that is more to a JV.

At this time, we will go to Sheila McGrath with Evercore.

Yes, Joel I wonder if you could talk about how far long in the process are these leases and are they all life science or tech at 50, 60 and 100 a Binney.

Yes. Well since we have Tom here, I will let him comment but the suffice it to say we have letter of intent that we are working on and coming very close to an agreement on which would then move to a lease pretty quickly on 50. We are trying to tee up the parameters of the economics on 60 and we are deep into LOI negotiations on a 100, but Tom do you want to maybe characterize it even more globally than that.

Yes, that's accurate Joe. I think the, we have some companies, some of the demand is pure growth from existing Cambridge based tenants including the couple of life science companies, there is one which is a consolidation of an existing Cambridge tenants have leases in multiple locations in the city and wants to be under one roof. There is another one that's to me and from an out of market life science Company. So, we have a number of ongoing discussions and we are quite confident that we will be able to lock down one or more of these probably soon for summer and perhaps all of the spaces available which totals over 950,000 square feet.

Yes, at the moment all of these are life science companies but there is a significant demand from tech and there is one large tech RFP that's out there that we will clearly respond to as well. We are looking at multiple back up offers as well. So it’s not just one shot on goal here, so we feel pretty comfortable with that.

And if we look at the potential cost, is it accurate to look at the cost per square foot of 75 to 125 Binney to estimate or is that higher?

So I think we in some cases here we are looking at tenants who are more office and lab use within some of these buildings you recall when we did 225 Binney we had a life sciences tenant that took office use in that building. So he cautioned that the lower in total I would say the range could be up to as much as the 75/125 Binney that's kind of a higher cost project in terms of the a model lab space in that in that tenant requirement and it could range down somewhat from, but it wouldn't be too far off the total that 75/125 [indiscernible].

Okay, last question on funding, Joe you mentioned asset sales, these projects will be coming online till '16 and '17. Are the asset sales going to be mostly concentrated in '15 or stretched over a longer period?

We are working through number of assets that will identify here over the coming months. So it's a bit fluid on the dispositions but our bogie at least for solving for our capital needs for '15 will be to execute a number of transactions that fit the capital plan in our business. Really, that will allow us to reinvest the capital into these really high value development projects. But I would say we would likely continue with this broad strategy i.e. invest cash flows that we retain from operations, use EBITDA growth to debt fund without impacting leverage and then continue to identify asset selectively for a recycling and reinvestment in to the business and like we mapped out, there is not a whole lot of land left but we’ll do some lands, but there will be some non-core assets and we will identify some that are more core like which should represent some high value opportunities to monetizing and reinvest.

I think Sheila with that though different than happened in the past; I think you can still expect that we would have an increase in FFO per share during this time period. So that’s something we’re keeping firmly in mind as well.

And now we’ll take a question from Jim Sullivan with Cowen and Company.

My question for you in terms of just how strong this market is in Cambridge, it does seem to be a level of demand growth which is exceptional and I think in the prepared comments you talked about low 70s is the rent per foot triple net for high quality built to suite. And I wonder if you could just remind us back in first half of the year I think we were talking about low 60s to mid-60s, is that right? Is that how much the movement has been?

The movement is on that order. I would say that we’ve certainly seen in proposals that other landmarks have been sending out to tenants and our own proposals we’ve seen significant movement from earlier in the year on the magnitude of $10 a square foot or more.

Can you give us a handle on what might have happened on construction costs, for the same period?

We project construction cost increases currently in the range of 6% NOI.

And then finally from me, can you give us an update on what’s happening with the Volpe site? I know this is some time off, but there was this I guess RFI. Maybe I don’t know if there is another date certain for the next step in the process but if you could just give us an update, if there is another step and number one and number two. What Alexander’s posture is here in terms of partner or not and the scale and the size of that project.

So there was and RFI which was due in early October, we know there were significant number of respondents to that RFI were told that the federal GSA is working on an RFP, we’ve had some folks tell us I think it might be out as early as sometime in Q1 of next year. We would imagine there would be probably a multi-month response timeframe for that. And that many development companies and operators would likely pursue that property which under proposed disowning in Cambridge accommodates if my recollection is correct over 2.5 million square feet of commercial space, over 1.5 million square feet of proposed residential zoning. So Alexandria certainly is following this closely, we made a response to the RFI. We expect that once we see the RFP then we’ll work carefully to evaluate how we ought to pursue what will be a very interesting opportunity.

And in terms of, you have a partner I believe with this working with you on this?

We have spoken with multiple partners; we have not selected a partner.

This time we’ll move Graham with [indiscernible].

Just wondering if you could sort of approximate the returns on joint ventures versus just going in company owned route? What order or kind of spread are we talking about?

This is Peter, I mean from a yield on cost standpoint that’s not -- it wouldn’t dilute what we’re going to achieve, it’s just going to -- the amount of investment we have would be obviously diluted by the amount of partner capital we bring in. We would be in a position to earn a promote, so it’s possible that we could actually leverage that partners investment and increase our own return. But what it does as it gives up upside to the future because we take that capital.

Take that capital -- possibly are you yielding assets in the future?

I am sorry you cut out, could you ask that again?

I mean employee capital being that you can employ the capital at higher rates in the future that you anticipate at higher lease rates of because they are the properties that you see with higher potential returns.

Well the reason that we might employ other people’s capital is an alternative to raising equity through common stock sales. So it’s just an -- the opportunity cost for doing that is up side in our own developments.

Have you figured what the blended cost to capital is for ARE currently versus those alternatives?

We have but we’re not prepared to share though.

The land sale inventory.

I think we need to move onto another questioner.

Next question will be from Ross Nussbaum.

Couple there's some questions. Joe is there anything you can say at this point about the press reports that you're acquiring Memorial Drive and Cambridge.

Yes I can tell you that similar to the press report that we were joint venturing with somebody for an apartment building in Boulder, Colorado you can't always believe everything you read but I think it's fair to say that we don't comment on speculation and when we're prepared to announce if that happen to be an acquisition or whatever it is we'll announce it when the time is appropriate so I'd have nothing more to say.

Okay, second question is back to Binney Street. How would you characterize your discussions with the tenants you're having today versus where you were three months to six months ago, because I know when we've spoken and met all year you've been I'd say similarly extraordinarily bullish on the leasing prospects there. So are you finally at the point where you're pretty darn confident this is getting over the finish line ASAP?

Yes let me say this and then I'll ask Tom to come in. When we go back to 4Q of '13 when we announced kind of on our strategic optionality, strategy if you will that we were assuming, we were going to joint venture and we put into play a pretty intense process to accomplish that I'd say the level of demand and forward movement of that demand in Cambridge probably didn't come to a head until the summer. And so maybe that's the really operative time then I’ll let Tom kind of characterize it.

Yes look I think it's really number of transactions that we would characterize it in the pipeline and a handful of them are getting to be very-very real in terms of the trading of proposals the frequency of discussions with brokers and with principles and these feel very much like they're moving toward completion and of course the answer, the truth is that they're not complete until they are complete and we don't have anything signed yet, but we're very positive negotiations ongoing and they feel it's been a compliment since specifically they feel like they're moving patients quite soon.

And I would say that in all three circumstances the lead party in all three of these cases we've had our prior relationships with so these are not parties that we have that we have not had a prior relationship with in other words we don't know each other so that's also I think a very helpful factor.

Okay and then finally for me, I guess I'm wondering a little bit why you'd wait if you will for proceeds from potential asset sales to come in ex-quarters or ex-funds down the road rather than just hang up the phone from this earning's call, pull the trigger and issue equity aid handle on the stock price given that we're in and uncertain and increasingly volatile world why take the risk that you'd be able to transact on asset sales couple of months from now then just take the equity now and get the balance sheet down toward your goals.

Yes, well that's certainly a relevant question and certainly one part of an argument that one could conceive of. In reality though Ross, we have enough confidence in the demand going forward here for a while, I think Peter articulated we also feel that we're in a pretty decent environment on the recycling of both land and some assets that I think we can look forward to I don't know how long that will last but I feel good about at least as we look at a few quarters. Our leverage, let’s face it, we’re operating in a better leverage level than we ever had before and better than a number of other companies that are really in great shape and have strong stock prices. And we just had meetings with the rating agencies in July. So we feel comfortable with where we've come over the last couple of years we've made dramatic improvements on virtually every single credit metric one could look at. And I think we feel good about where we are. And I think we'd like to protect our growth and earnings by minimizing the equity issuances and looking at those assets that we could sell. So I think that's our current game plan at the moment but I mean the situation you passed is related certainly one that reasonable people could look at but I think we're going to try to repeat what we did this year and in '14 and try to do it in a way that I think makes the most sense all around and minimize this dilution. But again, if there was a big change in the equity markets then we'll deal with that.

(Operator Instructions) At this time we will take a question from Jamie Feldman with Bank of America Merrill Lynch.

Can you talk about what was the other income in the quarter, looks like you are a little bit higher than usual?

Jamie, Dean Shigenaga here. Other income was $2.3 million. Actually I call it a little tad light from our run rate rather than higher, it was just higher from the second quarter. Second quarter was down less than 500,000. So that was an usually low quarter due to very small amount of investment gains in the quarter. So I would suggest from onward purpose as you should expect about a $3 million run rate for quarter.

Which is been historically pretty much worth enough.

Okay, and then can you talk about your any of the largest 2015 expiration been any that may not be covered or you think might be moving out of this point?

Yeah the two big ones that I will let Steve deal with that but the two that strike me we have one full building user in a suburb in Route 128 that is moving out and that’s a building that we are looking to release or potentially market. And then another one that rolls a full building user, government user in North Carolina and we have already got good re-leasing prospects on that. Those are the two standout full building users but as Steve said we've got unresolved paired down to three quarters of a million feet in ’15 which we think is really at this point in time pretty great.

You know that, that’s right. Jaime just a add to that. That’s just about 4% of the asset base and when you take out those two pieces that takes out about another third, got a block of space in tech square, so we think that will be an opportunity rather than a concern that’s in the 60,000 square foot range and then potentially in the ETC market and San Diego as well. So, no other real large blocks other than the two that Joel cited and spread out pretty uniformly with smaller pieces.

Okay, and then I guess for the 2015 expiration schedule. Give the sense of where you think those are those rents are versus market?

Well that’s kind of a mix, but if you want to go back, Jaime its Dean here again. If you want to go back to my prepared comments. I didn’t give specific guidance for ’15 but I did comment that cash rents on lease renewals and releasing a space should be meaningfully stronger than our performance in ’14 and we will layout the plan on Investor Day for you in more detail.

Okay, so just higher at this point. And then I guess just finally on San Diego, we have seen market conditions are getting stronger there generally across many sectors. What are you guys seeing in terms of your portfolio and maybe opportunities to do more non-life science leasing? Just how should we think about your business plan there going forward given the conditions seems to be exciting?

Yeah hi Jaime, this is Dan Ryan. So, word on usual situation at San Diego that we basically are out of inventory like most of the other regions, and we are now actively employing what land bank we have. As Steve mentioned earlier we are in discussions of an excess of 600,000 square feet of new build in our region. So it’s a rigorous mark right now, lot of what we responding to is internal portfolio growth. The question about whether we are crossing over into seeing some tech demand, we do have a couple of things. We did a Barnes Canyon project which we leased to a tech user; they have come back after having moved in for three week and asked if they can lease the next building over which is about 45,000 square feet, so we are working through that. So we are seeing probably not as vigorous as Steve’s market, but probably 80-20ish kind of life science and tech demand.

And do you have a preference one versus the other in terms of your return?

I think we are generally agnostic about I think it’s a matter where you are in the risk level with life science tenant fee versus the tech tenant fee. And we are generally agnostic about it, just really trying to target the best return in the overall risk adjusted capital investment.

That does conclude question-and-answer session. I will turn the things back over to Joe Marcus for closing remarks.

Thank you everybody. We did a well under an hour and that is great. So we will see many of you at Marriott and look forward to Investor Day or year-end call. Thank you again.