Good day, and welcome to the Alexandria Real Estate Equities Third Quarter 2019 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paula Schwartz with Investor Relations. Please go ahead.

Thank you and good afternoon. This conference call contains forward-looking statements within the meaning of the Federal Securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. And now I would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you, Paula. And welcome everybody to our third quarter call. And with me are Dean Shigenaga; Steve Richardson; Peter Moglia; and Dan Ryan. I'd like to start out by highlighting Alexandria's cluster markets remaining strong and vibrant and our first mover advantage is a huge competitive advantage to all the aspects of our business. Our high-quality cash flows are really based on best locations, best assets, best tenants in by far and away the best teams. When it comes to external growth, our disciplined allocation of capital to a visible highly leased value creation pipeline is highlighted pretty -- in pretty great detail in our supplement, you'll be able to see the pipeline we placed in service. But this quarter and recently the near-term growth of our annual net operating income and Dean will have a little bit of detail, it confuses a couple of people, but we didn't miss NOI -- any NOI numbers this quarter. We commenced development and redevelopment of a pretty significant pipeline, which is also detailed and we were successful on our leasing of development and redevelopment space. And Steve, and Peter and Dean will highlight all of that, when it comes to the Mercer Mega Block, which I think the team will highlight, I just want to say, we won that really irreplaceable development opportunity because there is no other group with 20 years or more experience on the ground with the expertise and the experience, we really have in South Lake Union and I think it's pretty obvious that our team completely understands the integration of that kind of the development with the community today. There is no longer opportunities just to simply build a great asset, you have to be able to build with not only your tenants in mind, but…

Thank you, Joel. Steve Richardson here. Alexandria's best-in-class franchise and fully integrated high performance team has put a number of truly noteworthy accomplishments on the board during the past quarter and I'll highlight just a couple. As Joel had mentioned, -- the City of Seattle selected Alexandria as its partner of choice to develop approximately 800,000 Square feet at one of the highest-profile sites in the entire city, the Mercer Mega Block. This was undoubtedly a highly competitive process and speaks volume to the national recognition Alexandria has achieved for its distinctive urban science and technology campus platform. Stanford University also selected Alexandria at its partner of choice to redevelop approximately 92,0000 square feet in the life science district of the Stanford Research Park, establishing a flagship destination to accelerate and really invigorate Stanford's life science cluster. And finally, as Joel had referenced as well. We are very pleased to receive our entire Prop M allocation at 88 Bluxome anchored there with a very exciting company Pinterest. Our team is really not only able to identify and execute upon the high quality growth opportunities and its clusters on the open market. But importantly able to bring our strong brand and multifaceted resources to bear in partnership with generational institutions like Stanford University, City governments like Seattle and others to advance mutually desirable and purposeful economic and societal goals. I'll just hit on a couple of broad companywide metrics. to really highlight the strong core results in our operating Urban campuses with really a theme and an emphasis on the continued positive momentum in the market. We had 1.2 million square feet of leasing this quarter and 3.3 million square feet year to date, which places us on track near the 10-year average at the Q3 mark. Q3, at 11.2% cash…

Thank you. Steve. I'm going to spend the next few minutes updating you on our near-term pipeline. Our acquisition of the Mega Block in Seattle, briefly touch on our partial interest sales and a highlight of material move in our NAV per a new methodology rolled out by Green Street. So by reading the press release, I'm sure you are immediately informed about how busy we have been and the delivery of development and redevelopment projects is no exception. During the third quarter, we placed a noteworthy 1,261,419 Square feet into service from six different projects in six different submarkets. And year-to-date we have leased 1.2 million square feet of development and redevelopment space highlighting the strong demand present in all of our markets. At 399 Binney Street the commercial space is now 100% leased. And our final cash stabilized yield of 7.3% is 10 basis points higher than what we reported last quarter, and significantly above our acquisition underwriting which demonstrates our disciplined approach to underwriting and managing complex projects. We also completed 279 East Grand in South San Francisco delivering the last 35,797 square feet in this project anchored by Alphabet's Life Science subsidiary Verily. We delivered another 39,372 square feet at 188 East Blaine, our new flagship property on Lake Union in Seattle and we made significant leasing progress at that project during this quarter. 30,900 square feet was delivered at Phase 1 of the Alexandria Center for AgTech, our class A highly differentiated multi-tenant project in the Research Triangle market and rounding out the high -- the highly active quarter was the delivery of two significant San Francisco Bay developments held an unconsolidated joint ventures 593,765 square feet at 1655 and 1725 Third Street Mission Bay, delivered under long-term lease to Uber and 520,988 square feet…

Thanks Peter, Dean Shigenaga here. Good afternoon, everyone. I'll cover four key topics today, including the third quarter results and continued strong cash flows from internal and external growth, continued execution of long-term capital to fund strategic growth initiatives and further improvement in our already solid balance sheet and an update on our corporate responsibility business vertical. And lastly, an update on our 2019 guidance. Total revenues for the third quarter were $380.5 million or $1.6 billion annualized and really was up significantly about 14.2% over the third quarter of 2018, reflecting continued and outstanding execution by our best-in-class team. We continue to generate solid cash flows from a high-quality tenant roster, with 53% of annual rental revenue from investment grade rated or publicly traded large cap companies. Core operating metrics remain very strong. NOI was on track with our expectations. As a reminder, 88% of the 1.3 million rentable square feet of value creation deliveries in the third quarter related to unconsolidated joint ventures. The related earnings from these JVs is classified in equity in earnings of unconsolidated real estate joint ventures. NOI from the unconsolidated JVs for the third quarter was $5.7 million, up $3.2 million over the second quarter of '19 and please refer to page 44 of our supplemental package for additional information. Our adjusted EBITDA margin continues to remain near the top of margins in the REIT industry at approximately 68% for the third quarter. The margin should increase to 69% next quarter and the temporary decline in the current quarter was driven primarily by seasonality with higher utility expenses, related to both higher rates and consumption due to the warmer summer weather. This resulted in higher recoverable expenses, but also a larger pool of operating expenses, which results in a minor decline in adjusted…

Operator, we can go to questions-and-answer, please.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Manny Korchman with Citi. Please go ahead.

Hey, everyone, how are you? On the earnings call; Joel, you talked about Stripe moving to their new construction project was wondering where your conversations have been with Stripe's and say seeming will be coming out of your asset?

Manny. Hi, it's Steve here. As you might imagine, we have ongoing discussions with all of our tenants and it was just the decision that they made they were looking at expansion opportunities in the near term. So decided to expand down in the South San Francisco market, and I think it's still TBD on what they'll do with 510 Townsend but it is truly one of the more iconic and probably highest quality buildings in San Francisco now. So either way we're in very good shape there.

Yes. And I think the move is unique to that company. And so I think just keep that in mind.

Joel, does that mean that you don't think that other companies will approach it from the same perspective that they're having a tough time growing and sort of San Francisco proper, and might have to look after their especially they want to keep one facility rather than have satellite offices?

Yes, I think it's a more complicated issue we're under confidentiality and not able to share. But I think it's a one company situation that is just unique and the Collins and Brothers. Yes just made a decision, but that's all we could say about it. So I wouldn't take it as a trend suddenly that everybody in the City of San Francisco's heading to South City.

Thanks for that. And then on the Mercer Mega Block. You guys several times refer to it as a win. I guess what was the city looking for in finding the right developer for that project or is there anything that you either have to be cognizant of or sort of target as you think about building and tenants in that project?

Yes. So I think the, as I said, and I'll let Peter come in as well. I think one of the most important things and this is true of major urban cities today, certainly cities on the West Coast, that have a variety of impacts from, whether it'd be homelessness or other issues, I think cities today, we're looking more than a developer -- developing an iconic building for tenants. I think they are looking for and integration with the strategic desires of the city, when it comes to economic and social issues, and I think they're also looking for an integration with the community around as well. Peter, you can comment as well.

Yes. Manny, it's Peter. They certainly did like our track record of creating ecosystems in New York, for example, the fact that we have the life science expertise, which is something, the city is interested in expanding. So all of the examples we've been able to point to as far as being able to build. Thriving cluster with amenities and other types of attractive features let them to choose us and move forward. So we're really proud of it.

Thank you.

And also, I want to promise that Peter would not go back and manage this Seattle region.

There is a deed restriction.

Our next question will come from Sheila McGrath with Evercore ISI. Please go ahead.

I guess, you have grown the cluster on the Stanford campus with some recent acquisitions this year and one this quarter. Just wondered if you could talk a little bit about your plans for building out that opportunity and is Stanford still a tenant in the building?

Sheila, this is Joel. I'll let Steve comment on the particulars. But I think it's important to remember, Stanford has been the leader in that part of the world with iconic tech companies spinning out and certainly the old HP garage kind of model, and I think over the years there have been a number of major life science presences in that submarket that have actually departed and tech companies took over those spaces. So I'd say over the past number of years, maybe the last 10 years, there has been a net decrease of life science companies in that particular submarket and I think Stanford's desire is to maybe reignite and re-energize the life science industry there and I think that was one of their motivations, specifically on the property itself, we're not ready to kind of get into all the details of what we're doing but Steve could give you a high-level comment.

Yes. Hi Sheila, it's Steve. No, we're really enthusiastic to be engaged with Stanford. We've been in the Research Park for 20 years. So, to continue to build out this life science district and then really when you look at the Greater Stanford area. There has been no new Class A product delivered there in 20 years. So, as Peter highlighted, we're making very good progress on the pipeline there and uniquely with the intersection of science and technology with Stanford's engineering background, it's just a wonderful cluster very vibrant and we look forward to working closely with them.

Okay, great. And then as a follow-up on the dispositions in San Diego in South San Francisco. Can you talk about the thought process on which assets you choose to monetize the interest level in that -- in those assets, and was the greater disposition number in guidance as a result of achieving better than expected pricing?

Sheila, this is Peter. I'll let Dean finish the question on the amount, but the, what we look forward to when we're selling a property is where have we fully realized value for a great period of time and what is -- maybe more one-off, although we don't really have a lot of one-off things anymore, but what is not necessarily part of an integrated campus in these two assets kind of illustrate that, the alumina campuses well leased for another 12 years. There's really nothing else we can do outside of developing the last Building 7 which is an important thing that we're looking to do down the road, but we were able to raise quite of a -- lot of capital from that one transaction and the percentage of upside to the amount of proceeds we got that we gave away it was minor. For 500 Forbes, it is in a great market that it has a lot of investor interest, but it is not necessarily close to a number of our assets along East Grand or other -- here [ph] addresses that we hold their Gateway, for example, a number of buildings that we hold there. So we looked at that and said, great location, but not necessarily integrated into our two campuses there. So it was a good one for us to do a partial interest sale. And of course we the word partial is. is important. We still own big, big chunk of the alumina campus and a minor position in 500 Forbes, and we'll continue to manage those assets and hold on to them for the long term.

Sheila, it's Dean here. I believe our initial guidance for dispositions this year started out fairly meaningful is probably close to $750 million, at least looking back to the end of '18. So we did end up with a little bit more capital on that front. I think we're getting close to a little over $900 million by the time we finish this year. So that additional capital discipline to funding broadly our needs this year. Most of that, as you know is going into construction, but we did have a fairly robust acquisition deal flow this year as well.

Okay, thank you.

Our next question will come from Jamie Feldman with Bank of America Merrill Lynch, please go ahead.

Great, thank you. I guess just sticking with the investment market. Can you talk more about the appetite from buyers across all the markets? And then what do you think in terms of cap rates or cap rate compression?

Jamie, it's Peter. Yes, it's obvious if it is open up a story in any of the markets that we're in and it's headlining with life science is being something people are interested in or raising money to invest in. So there is a very robust market for acquisitions and not a lot of things have traded, but for example, there was a portfolio of B assets that came to the market in Research Triangle Park in that set it pretty good GAAP rate comp for that market and it up in sub-6, which was well below or anyone had anticipated but illustrates the appetite for the asset class. So what was the other part of that question? [Indiscernible] cap rate sorry, yes...

Yes, cap rates.

I just said, cap rates just nationally on the office side, have not moved in a number of quarters. If you read the different publications from Real Capital Analytics and others that track these things in detail. Even with interest rates going down recently, but also going up last year fairly remain the same. And I'd say there is really no difference in the cap rates for lab, they also have been very stable over the last two years to three years.

Okay. And then I guess just maybe just to take a step back. The legislative environment, anything that you guys are watching or investors need to be watching that's either more or less risk than the last time we discussed it. The device I mean, you brought it up or it was discussed on the last conference call, just what do you kind of watching out the, what are you watching on the road ahead that is most concerning to you?

So, Jamie. Well, everybody is watching Washington for almost everything that happens and there is generally nothing happening, it's all talk and no do, but it's pretty clear that both the Democrats and Republicans would like to have going into election year some win in the area of broadly they call it drug pricing. But my own view is, it's more like healthcare costs because drug pricing is 10% -- 12% of the pie. And so you can't really impact healthcare cost by trying to impact 10% to 12% only you've really got to have a much bigger stroke. And as you know, it's a complicated chain you've got manufactures, you've got middleman, you've got the insurance companies. You've got users, -- why drugs have or therapies better said get more notice is when you go to a hospital you have surgery you come out $100,000 bill and you don't look at it, because everything is covered assuming you have insurance, but you may get a bill for $1,000, $2,000 somewhat dollars for pharmaceuticals that you took and you wonder why the heck am I my paying so much when you spent 100 times more than that on or the insurance covered it. So, somehow, they're trying to figure it out. I don't think anybody has an easy fix, there's things that are being talked about it tweak Medicare and I've talked about those on past calls, but at the moment I would say, we don't see anything dramatic happening on the horizon at the moment, but clearly watching carefully.

Okay. And then finally, given your commentary on unicorns and what's going on in the private equity market and IPO markets, what's your appetite to put fresh capital to work in your investment portfolio. Have you slowed that at all or do you expect to?

Well, we don't have any target investment amounts, we're opportunistic. Day-to-day, week-to-week, month to month, quarter to quarter. So, and we certainly are trying to harvest gains and recycle capital where we see it. I think to some extent we've been pretty cautious for a good part of the year because of valuations. I was in one meeting personally being pinched by an Investor actually SoftBank was a lead investor in this deal and the valuation was approaching $1 billion and we thank them for the meeting and passed on. So we've been very disciplined and very careful about what we do and how we do it. I think if the market declines. Actually that's a better time to invest and that a peak. So you kind of have to be agile, disciplined. I think that's the word. I think we always try to use both on the real estate side and on the investment side we try to maintain great discipline in what we do.

Okay, thank you.

Our next question will come from Michael Carroll with RBC Capital Markets. Please go ahead.

Yes, thanks. The company has done a pretty good job I guess sourcing future development projects and it looks like there is three sizable projects currently in the pipeline to be acquired in San Diego, San Francisco and Seattle. Can you discuss how management thinks about the timeline of these types of deals and is there a limit to how big you want to have the land bank?

I think we would not want to comment on deals in process, either what they are and the timing on that, but I will ask Dean to comment on the land bank because that's clearly an issue that we hold near and dear to our hearts and having been through the 2008-2009 really market crash. It's certainly important that where we try to be and there, we held a lot of land way more than we do today, but we were disciplined about not disposing of it in Mission Bay and then in Cambridge. But Dean can comment on kind of how we think about targets.

So, Michael. What we've done on Page 2 of the press release, given a bit of, bit of a breakdown of our land holdings as a percentage of gross real estate. So what is committed and under construction plus Bluxome which will be under construction hopefully soon represents about 7% of gross real estate and it's important to keep in mind, most all of that is vertical under construction, except for Bluxome, but we've made a lease commitment there and it's 64%, leased today, and then we also have land beyond that which I think is really where investors are probably focus because this is stuff that we haven't made a commitment to but represents the future growth opportunities and that's about 5% of gross investment in real estate. And so I think that's a modest number that we're carrying. And keep in mind much of what we're, we've talked about in the 7% bucket is targeted to be delivered by 2020 with the exception of Bluxome that will go beyond that.

And this is Peter. I mean you should also realize or just look at our statistics; we've been delivering well over 1 million square feet per year into all of our submarkets, so we're not just buying space and or buying land and sitting on it. We're putting it to work pretty closely to after acquiring it, and as I mentioned on the comments like just year-to-date, we've already put -- we've already leased 1.2 million square feet of development space. So we're acquiring things, but we're putting it to work on this quickly as we're closing.

Okay, great. And then Peter, can you talk a little bit about the competitive environment for I guess some of these, I guess acquisitions, just in general how has that changed over the past few years? Are you seeing the same type of players and have you seen pricing kind of increase some of these attractive land sites?

I think pricing is just a function of real estate in general, lab space is certainly attractive, but all asset types outside of retail have been gaining significant value and I think we're just along for the same, right? There are few more buyers in the [indiscernible] for things that are stabilized, but a lot of the same people are still are still there. And as you can see despite the activity that we've published in his report. We're coming out ahead in many of these bids.

Okay, great. Thank you.

Our next question will come from Rich Anderson with SMBC. Please go ahead.

Thanks, good afternoon. So, you touched on this in your comments but the third quarter, releasing spreads kind of brought down the average from a year-to-date perspective. Still in same growth. But I'm curious, is it fair to say that 30-ish type GAAP spreads for the long term is not something that investors and analysts should be thinking of or when you look, line of sight into what you have in front of you, including early renewals that growth of that order of magnitude, not to give us guidance is something that isn't sort of off the table or starting to sort of wither ?

Rich, it's Dean here. If you look back at Page 21 of our supplemental, you do have two quarter and three quarter years' worth of historical information on rental rate growth on leasing activity. I'll just rattle out some stats. But the GAAP numbers are 24% to 30% and the cash numbers anywhere from high 12% up to 16%. So that may be a little bit of a barometer for range it's all healthy extremely healthy. Even the stats that we published for the quarter. So you're talking about a different mix of leases, leases that are being executed every period and every year. So, I think is being able to address a healthy real estate environment like we have in front of us, should give us some solid rental rate growth as we think about the future, but I can't tell you today, it's too early to predict on guidance. Rich, so stay tuned for our Investor Day for 2020.

Yes, and okay. And I'd also say to Rich, I was actually at an investor meeting yesterday and one of the kind of leading investors I won't name him but talked about the macro environment going forward and created a range that if a progressive on the Democratic side one versus a Trump re-election that the market could swing literally 50%. So, down 30% and maybe up 10%, 15% or 20% on just policies obviously depends a lot on how Congress would shape up from the House and the Senate. But I think that we're all subject to that fluctuation or that kind of mindset going forward into 2020. So that's not specific to us, in particular. So if it turns out, predictions or whatever happens turned out to be positive, then that's going to be a lot more positive for our business and if turns out to be negative will be negative for our business. So I think that's a factor that is way beyond our control, for sure.

Sure, no problem. Thank you for that. And another sort of kind of recurring theme is the early renewal element to your leasing activity 69% this quarter, but you've really been into the future expiration schedule. I think something like 12% expiring in '20 and '21 combined. To that end, is there a finiteness to the quote unquote pipeline of early renewal activity in your mind, or can it extend well beyond '21 into '22 and forward such that the early renewal activity will continue for some time to come?

Yes, I think, I mean, my own view is, and I'll let these guys comment is not only early renewals but movement growth of companies where somebody leaves, I mean Stripe might be a good example and unexpected move by somebody. And then the backfilling of that space, if they do give it up. Don't know if they will or not. Steve's comment on that. But so there are a number of situations that continue to come up, one happened yesterday that we got word of in Greater Boston and somebody wanting to do something kind of unexpected. But at the end of the day, you say, wow. If we have that space back or could share rent on that space. It would be a big, a big plus because it's an older lease in place. So I think those things still permeate throughout the asset base.

Richard, it's Dean here. You're right that the volume on early renewals as a percentage of our leasing activity has been very high, but it's been high for a number of years. So I think given real estate fundamentals just a lack of general supply in the markets in our tenants needing to continue to grow, you should probably continue to see healthy renewal rates as a percentage of leasing activity. Our volume in expirations are relatively light 5% a year for the next few years, but we still have tremendous early renewals that will drive leasing velocity on top of that.

Okay, great. And then quickly Dean for you, just so I have the model right all the forward equity taken down in the fourth quarter and zero preferred dividends?

We just had a little bit of dividends due through the closing of Series D in October and then it goes away after that and the bulk of forward I think the question came up last quarter settles in 4Q. I'm sure we have a little bit coming in 3Q as well.

Okay, great. Thank you.

There are no further questions in the question queue. This will conclude the question-and-answer session. And I would like to turn the conference back over to Mr. Marcus for any closing remarks.

Okay, thank you very much everybody and we look forward to talking to you on fourth quarter and year-end. Take care.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.