Welcome to the Alexandria Real Estate Equities, Inc. Fourth Quarter and Year End 2014 Earnings Conference Call. My name is Jenifer 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 will now 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 and 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 [Audio Gap]. Please go ahead.

Thanks Rhonda and welcome everybody to our fourth quarter and year end 2014 call. With me today are Dean, Peter, Steve and Dan, and I want to start out with a couple of macro comments and first of all, really very proud of what our amazing Alexandria team collectively accomplished in 2014, our 20th anniversary year. We are really blessed to have a great business, an outstanding opportunity set and a business which passionately and positively impacts the quality of human health each and every day. We had an exceptional year with strong core growth and significant growth from completion of highly pre-leased value creation projects. Important to our success this year was Alexandria’s class A facilities and our collaborative science and tech campuses and really the hot urban innovation clusters, characterized by rising ramps, giving us pricing power, rising occupancy and constrained supply in our core urban cluster markets. 2014 also saw the U.S. FDA hit a 18 year high with drug approvals, 41 novel medicines versus 27 the year before and we’re very proud that 56% of those 41 companies were ARE client tenants. And there were a number of very significant breakthrough treatments for a variety of cancers and rare diseases. Dean will comment on guidance in a few minutes, but the midpoint of the guidance as we go forward for 2015 as you know is 510, which is an 8.3% growth and when combined with our dividend we're predicting a double digit return for this year. Internal growth operations in leasing really are characterized by very strong year end occupancy at 97% for North American operating properties. We have very solid same store or same property NOI growth and the fourth quarter witnessed solid leasing, particularly from North Carolina and San Diego. Let me just comment…

Thanks Joel. Dean Shigenaga here. Good afternoon everybody. I’ve got four important topics I want to cover today. First, obviously our strong performance in 2014 and continued focus on growth and FFO per share and growth in net asset value. Second, I want to touch on our quality cash flows and disciplined allocation of capital in the high value urban innovation cluster sub markets. Third, I’ll touch on and update on our significant progress on our capital plan for 2015, and key considerations for net asset value, and lastly I'll close out some comments on guidance. Jumping right in, the fourth quarter was a very strong quarter of performance with FFO per share of $1.23, and really the wrap up of an outstanding year with total shareholder return of 44.7%. Our FFO per share for the full year was $4.80, up 9.1% over 2013. Our strong performance in 2014 is projected to continue into 2015 with our mid-point of FFO per share of $5.20 or 8.3% over 2014. Our strong cash NOI growth from value creation deliveries throughout 2014 is driving significant growth in NOI and cash flows in 2015 with further increases from significant value creation deliveries in 2015. We continue to focus on growth in FFO per share and net asset value in 2015 and beyond. One of the key drivers of growth in FFO per share and net asset value in 2014 was the significant quarter-over-quarter growth in net operating income and cash flows and we expect this growth to continue into 2015. That will drive continued growth in net asset value. The quality of our ABR has improved significantly in recent years, supporting high quality and strong cash flows, the three key areas driving quality, ABR, and cash flows include; first 56% of our ABR is…

Thank you. Operator, let's open it up for Q&A please.

[Operator Instructions] And we will take our first question from Smedes Rose from Citi.

I wanted to ask you on your Technology Square purchase. Was there any decision around -- buying the 10% now versus at some other point, was there some sort of trigger that you needed to buy that now; and if you could give maybe a little more color on the 100,000 square feet that you could potentially out there as well. And then just more broadly, are there additional opportunities with MIT, where you would be kind of the natural buyer I guess?

Well let me -- this is Joel. With respect to the timing, it really is driven not by us, but MIT's Management Company's decision to sell certain assets so that they can invest them in development projects both on and off campus. So that really drove the decision for timing on Tech Square and 640 Memorial Drive. When it comes to other opportunities, certainly those would be very interesting. That given, Cambridge is one of our most important markets. When it comes to the 100,000 square feet, we're working on the design and entitlement of that. And so I'm not sure I could say much more than that. Tom is unavailable today, but I'll make a note. We'll comment in our next conference call and give you some updated details on that.

Okay. And then could I just ask one more about the land bank that you've talked about, potentially selling pieces from -- and you mentioned the Forbes Boulevard and South San Francisco, but is there more or much more from kind of the 2006, 2007 sort of vintage if you will that you would look to bring to market this year?

Not particularly. We did use a set of parcels there for the development of the Onyx campus, which when Onyx got acquired by Amgen, they succeeded to those assets. We do have another set of parcels for development, but I think that's something we'll continue to look at as time goes on. So it's possible but nothing certain at the moment.

And we will go next to Jamie Feldman from Bank of America Merrill Lynch.

So if you look at your acquisition guidance and what you've already done year-to-date or scheduled to do year-to-date, you've kind of hit that number. So what does the acquisition pipeline look like from here?

I don't think we have anything that is in the near-term, but we look at everything that comes to market that we feel is in the sweet spot of either the nature of the facility, and certainly the nature of the location. But I don't think we have anything in the near-term that we're looking at. And as I just said to Smedes, the timing of the Tech Square acquisition or really the sale by MIT and the decision to market 640 Memorial Drive really driven by their own capital needs and on decision making timing had nothing to do with ours, I can assure you.

And then you had meant -- you had commented that you are starting to build -- you could start to build a cluster in the mid Cambridge market. Can you talk a little bit about what might be different about that segment of Cambridge, whether it's tenants or building type or if that becomes a real investment for the future for you guys, what's different about it?

Well I think if you look at a map, it's directly west of East Cambridge. It encompasses, kind of circles -- it kind of touches MIT and circles around towards Harvard Square. There are a number of owners and developers in there. MIT certainly has an important toe hold. Some years ago we actually owned a property next to 640 Memorial called 620 Memorial that was ultimately leased to Pfizer and then I think we sold it to them and they -- I think they turned around and sold it just a year or two ago. But back about 10, 12 years ago we built 790 Memorial Drive and 780 Memorial Drive. Tom really managed that development right near the Polaroid building. And so that's been a real important anchor for us in that mid Cambridge market. So we like that market, and when this opportunity came up we decided to move on it.

Okay. And then I guess a similar question in San Francisco. As Mission Bay is filling up, what's kind of the next cluster you could create there? Will you go further south or you just try to keep penetrating the CBD?

Well I think you will see naturally it move out -- you can't move east from Mission Bay, because you'll be in the Bay, but you can move south, you can move west, and you can move north. So I think those would be the natural extensions at Mission Bay.

Okay. And then finally on the land sales in the quarter, any impairments? If we look at our current land bank, just what level of impairments you think you still need to see if you did sell some of that remaining land? Or is it finally now more of a mark to market?

Yes that's -- well it's always difficult to speculate what land will trade at Jamie, but I think if you turn to Page 37 of our supplemental, bifurcate the land holdings into two buckets, we have 2.3 million square feet in near-term and that product that you know is heavily under negotiation. So I'll skip over that. That's all going to yield very nicely, very attractive returns. The future bucket, you have about 2.9 million square feet, and if you go through that the larger components -- where the largest component 1.7 million spread across multiple markets is $32 a foot, I don't -- I am not really concerned in any meaningful way with that. It's $56 million. Everything else? If you’ve got, Technology Square, just some residential and Cambridge, Grand Avenue, which is adjacent -- the fourth side at the Onyx, Amgen campus, plus some other land on Grand Avenue. So great locations. We can make money on those deals. If we sold we'd be close to that depending on the buyer. If you compared it to the trade we just did we traded out of San Francisco to an industrial buyer at about $80 a foot. So maybe a slight haircut, but these are pretty small dollars, Jamie. So I think all in we're in really good shape.

And we'll go next to Sheila McGrath from Evercore ISI.

The GAAP cap rate on 500 Forbes looks to be about 5%. I'm just wondering if the cash cap rate is going to be close to that and could you describe the level of interest from buyers for that asset?

The GAAP cap rate is shown on our disposition page on the supplemental, probably at about 51, Sheila as you stated. I think the cash number trails that just a tad, maybe somewhere in the 30 to 40 bps behind that.

Okay, and were there a lot of potential buyers interested in that asset?

Let us not comment about the transaction itself, other than to say that you have a very high quality asset, that I think will be very attractive and we feel you can get a sense for our approximate price point that we expect to complete on the transaction. So I think it's an attractive trade for us.

Okay and then on 50, 60 and 100 Binney, the supplemental says 2016 and '17. If they are complete in '16 it would be very, very late in the year and not contributing or how should we think about timing in '16 for those projects?

Yes, I think -- it's hard to speculate on timing too specifically because there's a lot of negotiations ongoing and it ultimately will depend on the terms of the lease, but I think it's safe to say that if it contributes into '16 at all, its fourth quarter. That's probably the earliest. But the exact timing for each of those buildings will depend very specifically on the lease negotiation. So we can provide better color as we execute transactions.

Okay, and last question on investment page, you did have some unrealized gains. Was there an IPO or two and should we assume that there will be some sales from that bucket in 2015?

Yes, we had -- actually over the past two years I think we've had '14 IPOs. So yes, there will be I'm sure sales over coming quarters and years.

And we'll go next to Michael Carroll from RBC Capital Markets.

Hey Joel, can you discuss the demand you're seeing at the Illumina campus in the UTC. With a doubling of the size of the project that's under development, has the timing changed on the potential projects that are in the near term value creation pipeline?

Yes, Dan is here. So I'm going to let him comment.

Yes, good morning. So when you ask about the demand, in terms of Illumina's growth it has been extremely robust. The delivery of this next filming basically taps out there existing entitlements. So we're in front of the city now to entitle for about now at 350,000 square feet of additional space and we have -- they have asked us to go ahead and progress on that additional square footage that we think we can get.

Could you expect -- I guess could that break ground in the next few years also? Is there enough demand for that?

Yes, I think that's a fair assumption.

Okay, great. And then I guess my last question, can you talk a little bit about your asset sales in general? How much of the portfolio going forward do you want to sell? Is it that, that you just want to raise capital through asset sales or is there other assets that you want to dispose of?

Well, I think for the moment you have our guidance on what we'd like to accomplish for 2015. So we've got a range -- call it at the midpoint of $390 million. Again $178 has been held for sale. So either it's been completed or pending, and that leaves us with $212 million to complete for the rest of the year. And again that number is a mix when we think about what remains -- a little bit of land and some operating assets, and again we'll bring more color in the next couple of quarters. And I think when you go forward it's hard to speculate what will look towards in 2016 but I think we'll look at our options as we manage through our capital plan like we have this year, a lot of -- how much will be debt funded and then is there an opportunity to recycle assets for reinvestment. I think those would be our two priorities.

And we'll go next to Rich Anderson with Mizuho Securities.

What is your tenant retention percentage generally, and how has it trended over the recent past?

I think we did a study about a year ago when we looked back probably seven years if I recall and the retention rate has been pretty consistent as you roll that forward. It’s been averaging about 85% over that time frame. And the only qualifier I'd give -- as you know acquired a couple of assets recently that were development targets right out of the gate. It was leased. We acquired a lease in place but had generally maybe 12 months of remaining term and we’ll exclude something like that because that’s intentional targeted lease rolls that were planned for redevelopments. But it’s a very solid retention rate. You could tell from our occupancy stats and our leasing performance that it's all very consistent, so very strong retention.

Okay, and then looking at the leasing schedule, average lease term of 4.3 years for this quarter, it's kind of moved around that number over the past few quarters. What is your kind of desire, to make that a longer or shorter number, considering the strength of the markets?

Yes, it depends Rich, so much on the nature of the lease, the nature of the location and multi-tenant buildings with companies that grow rapidly and need flexibility on space. Three, five, seven years are kind of where the sweet spot is and then you get into the development. You see this quarter was about over 10 years. So you see in the larger blocks of space 10, 15, 20. That’s really how it's broken down for years, and years and we don’t expect to change that.

Okay. And then thinking of NAV, you’re developing to 7% to 8% stabilized return. What you think -- if you were to turn around and just sell those assets upon stabilization, what do you think the market would purchase those assets for?

Well, of course it depends on what market you are in.

I’d say Cambridge. So let's go high.

Well, I think you’re probably in potential sub five cap rate.

Okay. And where do you think a range would be? If that’s the floor, do you think it could be six of us at the top or depending on where you are in the country?

Well again, it depends on the nature of the building. If you have an older multi-tenant building, it would be higher than five, but if you have a new Class A facility with a long term lease and the credit tenant you’re not going to be above that.

Got you. And then last question. You took Asia out of the occupancy statistics. I know you have a dedicated sheet for Asia on Page 47, but I’m curious, is there anything symbolic about why you did that? Is there any change of strategy in Asia or if you can comment on that please.

No change. There is really -- Asia is a such small portion of our business, and as you know we’re really focused on our domestic growth opportunities here. So we continue to focus on the lease up of our properties there, but we have some work ahead. But again it’s a small piece of the business.

It is small, but do you think the long-term strategy is to be there at some point in five, 10 years or something like that?

I’d say -- it’s hard to speculate. I think we yield nicely in India on the operating assets and you can tell from our disclosures, China has been a little tougher on the returns. But it’s hard to speculate going forward. But I think it’s clear we’re not trying to put any significant new capital into those markets. Clearly investors and management and the board et cetera want us to focus on our core urban clusters here in the United States.

And we’ll go next to Michael Knott from Green Street Advisors.

It’s actually Kevin Tyler here. You commented earlier on Mid-Cambridge then you just give some color as it relates to cap rates in Cambridge overall, but the lease yield reported -- cash lease yield was about 5.9 as you said on 640 Memorial Drive, and I guess I was just curious -- based on the activity in that market, what is an appropriate spread between Mid-Cambridge and Kendall Square let say? And if this was 5.9 and Joe you say 5.4 high quality in Cambridge, how do you kind of explain that differential.

Unfortunately Tom is not here. So we’ll make a note and ask that question during our next call, but let me give you my own view on that. There could be -- again, it so much depends on the nature of the facility itself, new versus somewhat data is at multi-tenant, single-tenant, made term the lease credit and then exactly where it is. So 640 Memorial Drive, I think it’s encumbered by a ground lease. So that’s one thing. It is Mid-Cambridge. It is a really developed fairly new facility but has two tenants, long term leases. So that was in the heart of Kendall Square. My guess is maybe 50 basis points. It may drop to a five, five.

There is no upside on those rents as well. They are long term. There is no near term ability to try to mark-to-market. So it’s more of the stabilized asset.

It could even be -- maybe better said between 50 and 100 basis points between Mid-Cambridge and Cambridge.

Okay, thanks. On the development side you guys are continuing to talk about bringing development down. As a percent of gross investment I think the number you're quoting is 13% in the first quarter. But is there any broader read through on that number kind through a shift in strategy, acquisitions versus development going forward? And then how much of the reduction can you ascribe to portfolio growth or just recent deliveries.

Yes, so maybe I’ll talk to strategy and let Dean talk to the arithmetical calculation. And on strategy -- no change in strategy. We view ourselves really as best at creating value through development and re-development. We do take the opportunity on occasion to look at acquisition. 640 Memorial Drive was unusual for us. Tech Square was right up our sweet spot, because we've covered it. We've approached MIT for years actually and trying to buy that interest but they haven’t been ready, because they didn’t have a use of proceed. And then they kind of decided they were ready. So it kind of just depends, but I think it's fair to say that we believe we can create better value by creating value, not buying somebody else's value.

Yes. And let me add some color. I would say that the land bank dropping down to 13%, or I should say non income producing assets as a percentage of growth real estate declines to 13%, and that's really through -- substantially through deliveries, offset a little bit increase in construction spend. If you want to put that into perspective though, that’s still roughly 1.4 billion of non-income producing assets with 50% of that being active projects, which as you is highly leased, and about another 25% another of that number sits in near term which is in Cambridge 50 Binney, 60 Binney and 100 Binney. So I think we've got a good sized future pipeline but I think to put that number into further perspective, back in 2007 it was still about $1.3 billion. The Company was much smaller. So as we grow in size, that percentage will naturally become a smaller piece of our business, while still providing us great opportunities to grow respectively with build-to-suit opportunities. And I think our focus will be just being very careful and prudent on how much land we carry at any given point in time so we can minimize the carry and deliver product to the market as quickly as we can.

(Operator Instruction) And we'll go next to Dave Rodgers from Baird.

Joel, one question for you with regard to the backlog of demand and interest in your four key hub market. Are you seeing -- or what's the breakdown maybe between tech office or traditional office and kind of lab demand? And I guess the gist of the question is, one, are lab tenants in any particular market being priced out by higher rents? And two, are there any particular markets where the lab demand has really ebbed as the tech office demand has been flowing?

Yes, I would say maybe just taking around the country real quickly, I think Seattle tech demand and lab demand have been fairly steady there. I think again its very site specific. In San Francisco clearly tech demand -- I think as Steve has indicated, if you took a benchmark today, it's probably 10x of what lab demand is. But yet certain markets remain pretty key hot beds of laboratory properties South San Francisco, Mission Bay, even though Uber's coming in. But I think some of the other markets have gravitated or stayed much more tech. San Diego, I don’t know, Dan, you could you speak to that.

Yes, I think that we find that the life science demand is more significant than the tech demand.

And then moving to the other side of the country, I think in Research Triangle Park, really the ag demand and tech is really dominated there. Maryland is pretty much kind of lab. We haven’t seen a big tech influence there. New York, we're pretty much focused on life science there. We haven’t really gravitated to tech for our center. But obviously Silicon Ally and what's going on in New York City, certainly some of the other REITs have been very strong tech demand. But we think that’s -- we're creating a life science market there. So it's a little different for us. And then Cambridge -- clearly lab or office -- lab office or office by lab companies is still a main stay. But there is increasing demand by big tech users. So we're seeing both of it. So a little bit of different story in each of the markets. I don’t think any significant lab tenant is getting priced out of the market, because if you look at the health of the bio tech industry and the pharma industry, it's the best it's ever been for those two industries. So they’ve got more than $200 billion on balance sheet. And so if they want a site, they'll go after it and if they're competing against a big tech tenant, they can certainly go head to head.

I'm assuming that Uber building is not a lab ready building. Are there any other new construction projects of the major variety that you're looking at or you started there are not going to be kind of lab ready at some point in the future?

Maybe let's say it's not lab ready. It would be -- lab capable would maybe be a better way to say it. Clearly Townsend in we are likely sign a lease here on the very near-term with a brand name tech tenant. And then Binney, it's kind of a combination of who is bidding on that between life science and tech. So we'll see what shakes out there. But generally if we build a building -- and I think Tom and Steve had gone through this in a prior call, we try to -- if it's in the sweet spot of a Cambridge or a Mission Bay, we would make it lab capable and it's just a few bucks a foot to do that.

Of your 20 tenants, I think AstraZeneca is the only one that comes up in the next two years or before the end of 2016 with a major maturity. I think its 350,000 square feet. Are you having any discussions with them or can you talk at all about that tenant and their desire to be in that space?

Well, I think there's a few leases there. Some of it comes up early. The reason why it's got 1.7 remaining years is some of this comes up in early '15. Half of that space that does come up in early '15 I think has been resolved and has been leased. We're still working on the remainder of that and that's probably about a third of that ABR that I'm referring to of that $9.3 million. I don't have the details Dave on the other stuff with me.

But I think it's fair to say under the new leadership of Pascal Soriot, they obviously thwarted the Pfizer takeover. They've made a big presence -- continued significant presence through their MedImmune acquisition in the Maryland market. They have a big presence in the Boston market. So they are not retrenching in any of the locations that we've seen.

Dave, I think the other two leases go out to '18 and '19. So it's really weighted by a near-term rule.

And we will go next to Jim Sullivan from Cowen Group.

Joel, I wonder if you could give us kind of a top down summary of your view of East Cambridge and mid-Cambridge. And what I'm referring to is that obviously the Volpe site I gather is still under discussion negotiation, I guess with the GSA and we keep hearing about not just yourself but your peers in MIT looking to increase density where they can on sites that they control. And then of course I guess there's a local community pressure to increase the amount of residential space anytime any increased density is provided. And as you think about the value creation opportunities in East Cambridge, as well I guess those value creation opportunities in the adjacent market and mid-Cambridge, maybe you can kind of summarize for us how much square feet -- additional square feet might be entitled in the next couple of years in East Cambridge and kind of relate that to the demand that you foresee continuing or emerging over the next two years?

Yes, that's a question again I would probably punt on that to Tom and will try to address that in the next call. But let me just say this. There is right now about 2.3 million square feet of demand from at least seven major potential tenants, seeking blocks greater than 100,000 square feet just in the East Cambridge area. And so if you just look at what's out there just at this moment in time the numbers are pretty significant. MIT has a big development that they are working. I'd suspect that some of the capital that we've provided them will go into that. It's a pretty large site that they will be able entitle and build on, I think probably over the next maybe over the next -- begin over the 18 to 24 months. The Volpe site is a large site that -- a couple of million square feet including both commercial and residential. Obviously probably every developer between Boston and New York is looking at that. There is the North Point site which is -- at the moment has not been in favor, a couple of million square feet up there both on commercial and residential. We understand that that actually is in play right now. It was owned by a private equity shop here out of Los Angeles and they're looking to market it. We've heard that there is a lot of foreign interest in that particular site. And then others are looking to add density, as you know Boston Properties et cetera. So there is a pretty big -- there's a pretty big movement to expand entitlements and capabilities and availabilities in that market. But there is somewhat tougher Cambridge council now looking at all kinds of issues including both residential and obviously traffic…

Yes. can you also just remind us when these sites might include as part of an increased density entitlement, the development of residential what your philosophy is and how you're going to handle that if you do get entitled to do residential? Are you bringing [indiscernible]?

Yes, we've been required to build certain residential on the Binney street quarter. I think it's about 273.

Yes, 273 is the first project. It's probably about 90 some odd units and it's probably an investment in the $40 million - $45 million range for that project.

Yes. So that's part of the give and take that we had with Cambridge a number of years ago when we entitled and up-zoned our Binney street sites. So that's just part of doing business. In New York, a lot of developers are facing the same issue, how to address the housing issue. That obviously is front and center with the mayor. So I think a lot of -- and I think San Francisco over time, workforce housing is going to be a very important issue for a lot of companies in a lot of cities.

And in terms of doing that, your approach should be to do it on your own balance sheet, not bring in a partner?

We talked to a partner but in our case in Cambridge it was small enough that it made sense. What our long term hold on it, we don't really know. We're not really a residentially holder for I think long term, but we haven't made any short term decisions. But I think part of being a commercial developer today in urban innovation cluster centers is the reality that residential is going to be front and center in some cases.

Okay and then finally for me, you've mentioned in the past digital health as a segment of life sciences where you thought we were in the early stages of maybe some material demand growth. And I'm just curious. There was a lot of capital formation in that. And I wondered if you could just remind us whether you anticipate digital health as a demand segment to be concentrated in any of your existing submarkets?

Yes, so far we see it more importantly in the city of San Francisco. A number of companies who are really brand names in that area have grown up. They occupy at the moment kind of tech office space. I think the challenge with digital health -- and I do think it will be an important segment as time goes on is you have kind of a juxtaposition. You have the baby boom generation needing more healthcare services but less capable when it comes to social media and electronic kind of digital if you will tools to implement that health and then you have on the other end a millennial generation, highly sophisticated in the digital world but not caring a whole lot about health because when you're 15 or 20 or 25, your health, there are exceptions to that -- generally is in good shape. So this industry is still in the formative stages. There's a lot of venture capital going into it. But it will probably take three to five years to begin to kind of shake out and mature. But it is here to stay and this intersection between healthcare and the digital world will clearly make an important cost impact difference over time for sure.

And it appears that we have no further questions at this time. I will now turn the program back over to Mr. Marcus for some closing remarks.

Okay, well thank you very much. We did it in less than an hour and we'll look forward to talking to you on the first quarter call. Thanks again everybody.

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.