Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2018, Financial and Operating Results: Strong Internal and External Growth, Operational Excellence and Growing Dividends
PASADENA, Calif., Oct. 29, 2018 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) announced financial and operating results for the third quarter ended September 30, 2018.
Key highlights
Core asset sale
We expect to sell a partial joint venture interest in a Class A property located in our Cambridge submarket with proceeds of approximately $400 million or greater.
Key sale of unconsolidated real estate joint venture interest
In September 2018, we sold our remaining 27.5% ownership interest in our 360 Longwood Avenue unconsolidated real estate joint venture, located in our Longwood Medical Area submarket at a sales price of $1,659 per rentable square foot ("RSF"), with capitalization rates of 5.1% and 4.7% (cash basis). Our share of the contractual sales price, net of debt repaid, was $70.0 million, and our gain on sale was $35.7 million.
Credit rating upgrade
In September 2018, Moody's Investors Service upgraded our corporate issuer credit rating to Baa1/Stable from Baa2/Stable. The rating upgrade reflects the continued and significant improvement of Alexandria's credit profile resulting from a diversified portfolio of life science properties in key markets with consistently high occupancy and high-quality tenants, many of which are less sensitive to economic cyclicality.
A REIT Industry Leading Tenant Roster
52% of annual rental revenue from investment-grade or publicly traded large cap tenants.
Continuation of strong rental rate growth
Solid rental rate increases for 3Q18, of 35.4% and 16.9% (cash basis). Rental rate increase of 35.4% represents the highest increase during the past 10 years.
Increased common stock dividend
Common stock dividend for 3Q18 of $0.93 per common share, up 7 cents, or 8.1%, over 3Q17; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.
Strong internal growth
- Total revenues:
- $341.8 million, up 19.8%, for 3Q18, compared to $285.4 million for 3Q17
- $987.0 million, up 19.0%, for YTD 3Q18, compared to $829.3 million for YTD 3Q17
- Net operating income (cash basis) of $867.1 million for 3Q18 annualized, up $48.4 million, or 5.9%, compared to 2Q18 annualized, and up $173.9 million, or 25.1%, compared to 4Q17 annualized
- Same property net operating income growth:
- 3.4% and 8.9% (cash basis) for 3Q18, compared to 3Q17
- 3.8% and 9.9% (cash basis) for YTD 3Q18, compared to YTD 3Q17
- Continued solid leasing activity and strong rental rate growth, in light of modest contractual lease expirations at the beginning of 2018 and a highly leased value-creation pipeline:
3Q18 | YTD 3Q18 | |||||||
Total leasing activity – RSF | 696,468 | 3,163,628 | ||||||
Lease renewals and re-leasing of space: | ||||||||
Rental rate increases | 35.4% | 26.9% | ||||||
Rental rate increases (cash basis) | 16.9% | 15.0% | ||||||
RSF (included in total leasing activity above) | 475,863 | 1,437,676 | ||||||
Strong external growth; disciplined allocation of capital to visible, multiyear, highly leased value-creation pipeline
- Highly leased value-creation pipeline with deliveries targeted for 2018 and 2019:
Property Leased % | Unlevered Yields | ||||||||||
Target Delivery | Initial Stabilized | Initial Stabilized (Cash) | |||||||||
2018 | 489,363 RSF | 78% | 7.5% | 7.0% | |||||||
2019 | 2,119,260 RSF (1) | 89% | 7.3% | 6.7% | |||||||
2,608,623 RSF | 86% | 7.3% | 6.8% | ||||||||
(1) Includes 3Q18 commencement of our redevelopment project aggregating 142,400 RSF at 681 Gateway Boulevard in our South San Francisco submarket. | |||||||||||
- We expect to present our value-creation pipeline with deliveries targeted for 2019, 2020, 2021, and 2022 at our annual Investor Day event on November 28, 2018.
Recent and future growth in net operating income (cash basis) driven by recently delivered projects
- Strong near-term contractual growth in annual cash rents of $29 million related to initial free rent granted on development and redevelopment projects recently placed into service (and no longer included in our value-creation pipeline) that are currently generating rental revenue.
Completed strategic acquisitions
- During 3Q18, we acquired two properties and one land parcel for an aggregate purchase price of $257.0 million in key submarkets. These acquisitions included 219 East 42nd Street, a 349,947 RSF building in New York City with an opportunity to either convert the existing office space into office/laboratory space through future redevelopment or to expand the building by an additional 230,000 RSF through ground-up development. The building is currently occupied by Pfizer Inc. with a remaining lease term of six years.
Operating results
YTD | ||||||||||||||||
3Q18 | 3Q17 | 3Q18 | 3Q17 | |||||||||||||
Net income attributable to Alexandria's common stockholders – diluted: | ||||||||||||||||
In millions | $ | 210.2 | $ | 51.3 | $ | 394.1 | $ | 108.6 | ||||||||
Per share | $ | 1.99 | $ | 0.55 | $ | 3.85 | $ | 1.20 | ||||||||
Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted: | ||||||||||||||||
In millions | $ | 173.6 | $ | 140.8 | $ | 504.0 | $ | 407.5 | ||||||||
Per share | $ | 1.66 | $ | 1.51 | $ | 4.92 | $ | 4.49 | ||||||||
See "Items Included in Net Income Attributable to Alexandria's Common Stockholders" below for additional information. | ||||||||||||||||
Items included in net income attributable to Alexandria's common stockholders: | ||||||||||||||||||||||||||||||||||
YTD | ||||||||||||||||||||||||||||||||||
(In millions, except per share amounts) | 3Q18 | 3Q17 | 3Q18 | 3Q17 | 3Q18 | 3Q17 | 3Q18 | 3Q17 | ||||||||||||||||||||||||||
Amount | Per Share – Diluted | Amount | Per Share – Diluted | |||||||||||||||||||||||||||||||
Realized gain on non-real estate investment | $ | — | $ | — | $ | — | $ | — | $ | 8.3 | $ | — | $ | 0.08 | $ | — | ||||||||||||||||||
Unrealized gains on non-real estate investments(1) | 117.2 | — | 1.11 | — | 194.5 | — | 1.90 | — | ||||||||||||||||||||||||||
Gain on sales of real estate | 35.7 | (2) | 14.1 | (2) | 0.34 | 0.15 | 35.7 | (2) | 14.5 | 0.35 | 0.15 | |||||||||||||||||||||||
Impairment of: | ||||||||||||||||||||||||||||||||||
Real estate | — | — | — | — | (6.3) | (0.2) | (0.06) | — | ||||||||||||||||||||||||||
Non-real estate investments | — | — | — | — | — | (4.5) | — | (0.05) | ||||||||||||||||||||||||||
Loss on early extinguishment of debt | (1.1) | — | (0.01) | — | (1.1) | (0.7) | (0.01) | (0.01) | ||||||||||||||||||||||||||
Gain on early extinguishment of debt | 0.8 | (2) | — | 0.01 | — | 0.8 | — | 0.01 | — | |||||||||||||||||||||||||
Preferred stock redemption charge | — | — | — | — | — | (11.3) | — | (0.12) | ||||||||||||||||||||||||||
Allocation to unvested restricted stock awards | (2.4) | (0.2) | (0.02) | — | (3.4) | — | (0.03) | — | ||||||||||||||||||||||||||
Total | $ | 150.2 | $ | 13.9 | $ | 1.43 | $ | 0.15 | $ | 228.5 | $ | (2.2) | $ | 2.23 | $ | (0.02) | ||||||||||||||||||
Weighted-average shares of common stock outstanding for calculation of earnings per share – diluted | 105.4 | 93.3 | 102.4 | 90.8 | ||||||||||||||||||||||||||||||
(1) See "Investments" on page 42 of our Supplemental Information for additional information (2) Included in equity in earnings of unconsolidated real estate joint ventures in our consolidated statements of income | ||||||||||||||||||||||||||||||||||
Core operating metrics as of or for the quarter ended September 30, 2018
High-quality revenues and cash flows and operational excellence
- Percentage of annual rental revenue in effect from:
- Investment-grade or publicly traded large cap tenants: 52%
- Class A properties in AAA locations: 77%
- Occupancy of operating properties in North America: 97.3%
- Operating margin: 71%
- Adjusted EBITDA margin: 69%
- Weighted-average remaining lease term:
- All tenants: 8.6 years
- Top 20 tenants: 12.3 years
- See "Strong Internal Growth" on the previous page for information on our total revenues, same property net operating income growth, leasing activity, and rental rate growth.
Balance sheet management
Key metrics
- $19.1 billion of total market capitalization
- $2.9 billion of liquidity
3Q18 | |||||||
Quarter | Trailing 12 | 4Q18 | |||||
Annualized | Months | Goal | |||||
Net debt to Adjusted EBITDA | 5.7x | 6.1x | Less than 5.5x | ||||
Fixed-charge coverage ratio | 4.1x | 4.3x | Greater than 4.0x | ||||
Unhedged variable-rate debt as a percentage of total debt | 6% | N/A | Less than 5% | ||||
Current and future value-creation pipeline as a percentage of gross investments in real estate in North America | 12% | N/A | 8% to 12% | ||||
Key capital events
- During 3Q18, we amended our unsecured senior line of credit and unsecured senior bank term loan to extend the maturity date of each to January 28, 2024. We recognized a loss on early extinguishment of debt of $634 thousand related to the write-off of unamortized loan fees associated with these amendments. The key changes are summarized below:
Amended Agreement | Change | ||||||||
Line of Credit | Term Loan | Line of Credit | Term Loan | ||||||
Aggregate commitments | $2.2 billion | $350.0 million | Up $550 million | No change | |||||
Maturity date | January 2024 | January 2024 | Extended by 27 months | Extended by 36 months | |||||
Interest rate | L+0.825% | L+0.90% | Down 17.5 bps(1) | Down 20 bps(1) | |||||
(1) | Includes interest rate reductions of 10 bps and 15 bps on our unsecured senior line of credit and unsecured senior bank term loan, respectively, related to the upgrade of our corporate issuer credit rating from Moody's Investors Service. See "Credit Rating Upgrade" on the previous page for additional information. |
- Debt repayments during 3Q18 consisted of the following (dollars in thousands):
Debt | Payment Date | Stated Rate | Amount | (Loss) Gainon Early Extinguishmentof Debt | |||||||||||
2019 Unsecured Senior Bank Term Loan | September 2018 | L+1.20% | $ | 200,000 | $ | (189) | |||||||||
Secured construction loan | July 2018 | L+1.50% | $ | 150,000 | $ | (299) | |||||||||
Menlo Gateway, Phase I(1) | August 2018 | L+2.50% | $ | 133,137 | $ | 761 | (1) | ||||||||
(1) | This loan for our unconsolidated real estate joint venture was refinanced with a new loan for $145.0 million that bears an interest rate of 4.15%. Gain on early extinguishment of debt is included in equity in earnings of unconsolidated real estate joint ventures in our consolidated statements of income. |
- In September 2018, we settled 857,700 shares from our January 2018 forward equity sales agreements and received proceeds of $100.0 million, net of underwriting discounts and adjustments provided in the agreements. We expect to receive additional proceeds of $606.3 million upon settlement of the remaining outstanding forward equity sales agreements prior to the expiration in April 2019, to be further adjusted as provided in the sales agreements.
- In August 2018, we entered into a new "at the market" common stock offering program ("ATM program"), which allows us to sell up to an aggregate of $750.0 million of our common stock. During 3Q18, activities under our existing and new ATM programs were as follows:
(Dollars in thousands, except per share amounts) | 3Q18 | ||||||
Shares issued | 1,559,083 | ||||||
Average issue price per share | $ | 127.66 | |||||
Net proceeds | $ | 195,504 | |||||
Remaining availability | $ | 658,691 | |||||
Corporate responsibility and industry leadership
During 3Q18, we received the following awards and recognitions:
- Second consecutive "Green Star" designation and first "A" disclosure score by GRESB, and were recognized as the #1 real estate company in the world in GRESB's Health & Well-being Module.
- Two design awards related to our interior build-out at 505 Brannan Street in our Mission Bay/SoMa submarket:
- Architizer A+ Award for Commercial Office Interiors greater than 25,000 SF
- Award of Merit for Best Projects 2018 from ENR California
- First place in the High-Rise category of the City of Seattle's 2017 People's Choice Urban Design Awards for our 400 Dexter Avenue North building
- Sustainable Design Awards winner in the Sustainable Private Organization category from the San Diego Green Building Council
- Silver Tier recognition in SANDAG's Diamond Awards program for our commuting programs that encourage alternative transportation
Subsequent events
- In October 2018, we initiated the development of the North Tower at the Alexandria Center® for Life Science – New York City, with the signing of an amendment to our long-term ground lease with the New York City Health and Hospitals Corporation and New York City Economic Corporation. The amendment enables us to begin due diligence, design and permitting on the North Tower, the campus's third tower, which has been increased from the originally planned 420,000 RSF to approximately 550,000 RSF. The Alexandria Center® for Life Science – New York City currently comprises 728,000 RSF in the East and West Towers, and upon completion of the North Tower, the campus will consist of nearly 1.3 million RSF.
- In October 2018, we completed the acquisition of a redevelopment building at 30-02 48th Avenue aggregating 176,759 RSF, in New York City, of which 140,098 RSF is undergoing conversion from existing office space to office/laboratory space. We also have the opportunity to convert the remaining space of 36,661 RSF, which is currently occupied, from existing office space to office/laboratory space through future redevelopment.
- In October 2018, we repurchased, in privately negotiated transactions, 214,000 shares of our 7.00% Series D cumulative convertible preferred stock for $7.5 million, or $35.00 per share, and recognized a preferred stock redemption charge of $2.3 million.
Sustainability September 30, 2018
Acquisitions September 30, 2018 (Dollars in thousands) | |||||||||||||||||||||||||||||||||
Property | Submarket/Market | Date of Purchase | Number of Properties | OperatingOccupancy | Square Footage | Unlevered Yields(1) | Purchase Price | ||||||||||||||||||||||||||
Operating | Operating with Future Redevelopment | Active Development/Redevelopment | Future Development | Initial Stabilized | Initial Stabilized (Cash) | ||||||||||||||||||||||||||||
3Q18 Acquisitions: | |||||||||||||||||||||||||||||||||
219 East 42nd Street | New York City/ New York City | 7/10/18 | 1 | 100% | — | 349,947 | (2) | — | 230,000 | (2) | 6.8% (2) | 6.7% | (2) | $ | 203,000 | ||||||||||||||||||
701 Dexter Avenue North | Lake Union/Seattle | 7/20/18 | — | N/A | — | — | — | 217,000 | (1) | (1) | 33,500 | ||||||||||||||||||||||
Other | Other | 1 | 100% | 45,626 | — | — | — | N/A | N/A | 20,500 | |||||||||||||||||||||||
2 | 45,626 | 349,947 | — | 447,000 | 257,000 | ||||||||||||||||||||||||||||
October Acquisition: | |||||||||||||||||||||||||||||||||
30-02 48th Avenue | New York City/ New York City | 10/9/18 | 1 | 100% | — | 36,661 | (3) | 140,098 | (3) | — | (1) | (1) | 75,000 | ||||||||||||||||||||
1H18 acquisitions | 745,255 | ||||||||||||||||||||||||||||||||
Total | $ | 1,077,255 | |||||||||||||||||||||||||||||||
2018 guidance midpoint | $ | 1,080,000 | |||||||||||||||||||||||||||||||
(1) | We expect to provide total estimated costs and related yields in the future around the commencement of development and redevelopment. |
(2) | Refer to the "New Class A Development and Redevelopment Properties: Summary of Pipeline" on page 38 of our Supplemental Information for additional information. |
(3) | We acquired a 176,759 RSF building, of which 79% is undergoing conversion from existing office space to office/laboratory space through redevelopment and 21% is office space that is leased and occupied. Upon expiration of the in-place leases, we have the opportunity to convert this office space to office/laboratory space through redevelopment. |
Dispositions September 30, 2018 (Dollars in thousands, except per RSF amounts) | |||||||||||||||||||||||||||||||||
At 100% | Our Share | ||||||||||||||||||||||||||||||||
Property/Submarket/Market | Date of Sale | RSF | Sales Price | Debt Repaid | Sales Price per RSF | Capitalization Rate(Cash Basis) | Sales Price | Sales Price, Net of Debt | Gain | ||||||||||||||||||||||||
Capitalization Rate | |||||||||||||||||||||||||||||||||
360 Longwood Avenue/Longwood Medical Area/ Greater Boston(1) | 9/26/18 | 210,709 | $ | 349,500 | $ | 95,000 | $ | 1,659 | 5.1% | 4.7% | $ | 96,113 | $ | 69,988 | $ | 35,678 | |||||||||||||||||
Land Parcel/Northern Virginia/Maryland | 7/2/18 | N/A | N/A | N/A | N/A | N/A | N/A | 6,000 | 6,000 | — | (2) | ||||||||||||||||||||||
(1) | We sold our remaining 27.5% ownership interest in this unconsolidated real estate joint venture. |
(2) | During the second quarter of 2018, we entered into an agreement to sell this land parcel and recognized an impairment of $6.3 million to lower its carrying amount to estimated fair value less selling costs. |
Guidance September 30, 2018 (Dollars in millions, except per share amounts) | ||||||||||||||||||
The following updated guidance is based on our current view of existing market conditions and assumptions for the year ending December 31, 2018. There can be no assurance that actual amounts will be materially higher or lower than these expectations. See our discussion of "forward-looking statements" on page 8 of this Earnings Press Release for additional information. | ||||||||||||||||||
Summary of Key Changes in Guidance | Guidance | Summary of Key Changes in Key Sources and Uses of Capital Guidance | Guidance Midpoint | |||||||||||||||
As of 10/29/18 | As of 7/30/18 | As of 10/29/18 | As of 7/30/18 | |||||||||||||||
EPS, FFO per share, and FFO per share, as adjusted | See updates below(1) | Real estate dispositions and common equity(2) | $ | 1,490 | $ | 1,430 | ||||||||||||
Rental rate increases | 22.5% to 25.5% | 17.0% to 20.0% | Acquisitions | $ | 1,080 | $ | 1,010 | |||||||||||
Rental rate increases (cash basis) | 11.5% to 14.5% | 9.5% to 12.5% | ||||||||||||||||
Projected Earnings per Share and Funds From Operations per Share Attributable to Alexandria's Common Stockholders – Diluted | |||||||||
As of 10/29/18 | As of 7/30/18 | ||||||||
Earnings per share ("EPS") | $4.34 to $4.36 | $2.87 to $2.93 | |||||||
Depreciation and amortization | 4.50 | 4.50 | |||||||
Gain on sales of real estate | (0.35) | — | |||||||
Allocation to unvested restricted stock awards | (0.06) | (0.05) | |||||||
Funds from operations per share | $8.43 to $8.45 | $7.32 to $7.38 | |||||||
Unrealized gains on non-real estate investments(3) | (1.90) | (0.76) | |||||||
Realized gain on non-real estate investment in 1Q18 | (0.08) | (0.08) | |||||||
Impairment of real estate – land parcels | 0.06 | 0.06 | |||||||
Preferred stock redemption charge in October 2018 | 0.02 | — | |||||||
Allocation to unvested restricted stock awards | 0.03 | 0.03 | |||||||
Other | 0.03 | — | |||||||
Funds from operations per share, as adjusted | $6.59 to $6.61 | $6.57 to $6.63 | |||||||
Midpoint | $6.60 | $6.60 | |||||||
Key Assumptions | Low | High | |||||||
Occupancy percentage in North America as of December 31, 2018 | 97.1% | 97.7% | |||||||
Lease renewals and re-leasing of space: | |||||||||
Rental rate increases | 22.5% | 25.5% | |||||||
Rental rate increases (cash basis) | 11.5% | 14.5% | |||||||
Same property performance: | |||||||||
Net operating income increase | 2.5% | 4.5% | |||||||
Net operating income increase (cash basis) | 9.0% | 11.0% | |||||||
Straight-line rent revenue | $ | 92 | $ | 102 | |||||
General and administrative expenses | $ | 85 | $ | 90 | |||||
Capitalization of interest | $ | 55 | $ | 65 | |||||
Interest expense | $ | 155 | $ | 165 | |||||
Guidance as of 10/29/18 | |||
Key Credit Metrics | |||
Net debt to Adjusted EBITDA – 4Q18 annualized | Less than 5.5x | ||
Net debt and preferred stock to Adjusted EBITDA – 4Q18 annualized | Less than 5.5x | ||
Fixed-charge coverage ratio – 4Q18 annualized | Greater than 4.0x | ||
Unhedged variable-rate debt as a percentage of total debt as of December 31, 2018 | Less than 5% | ||
Value-creation pipeline as a percentage of gross real estate as of December 31, 2018 | 8% to 12% |
Key Sources and Uses of Capital | Range | Midpoint | Key Items Remaining After 9/30/18 | ||||||||||||||
Sources of capital: | |||||||||||||||||
Net cash provided by operating activities after dividends | $ | 140 | $ | 180 | $ | 160 | |||||||||||
Incremental debt | 550 | 510 | 530 | ||||||||||||||
Real estate dispositions and common equity | 1,390 | 1,590 | 1,490 | $ | 111 | (4) | |||||||||||
Total sources of capital | $ | 2,080 | $ | 2,280 | $ | 2,180 | |||||||||||
Uses of capital: | |||||||||||||||||
Construction | $ | 1,050 | $ | 1,150 | $ | 1,100 | $ | 305 | |||||||||
Acquisitions | 1,030 | 1,130 | 1,080 | (5) | |||||||||||||
Total uses of capital | $ | 2,080 | $ | 2,280 | $ | 2,180 | |||||||||||
Incremental debt (included above): | |||||||||||||||||
Issuance of unsecured senior notes payable | $ | 900 | $ | 900 | $ | 900 | |||||||||||
Repayments of secured notes payable | (160) | (165) | (163) | ||||||||||||||
Repayment of unsecured senior bank term loan | (200) | (200) | (200) | ||||||||||||||
$2.2 billion unsecured senior line of credit/other | 10 | (25) | (7) | ||||||||||||||
Incremental debt | $ | 550 | $ | 510 | $ | 530 | |||||||||||
(1) | Guidance range for funds from operations ("FFO") per share, as adjusted, was reduced from six cents to two cents, with the midpoint unchanged at $6.60. |
(2) | Our updated key sources and uses of capital guidance excludes the sale of a partial joint venture interest in a Class A property located in our Cambridge submarket with proceeds of approximately $400 million or greater that we expect to close over the next one to two quarters. We can provide no assurance this transaction will be completed. |
(3) | Excludes future unrealized gains or losses that could be recognized in earnings from changes in fair value of equity investments after September 30, 2018. See page 42 of our Supplemental Information for additional information. |
(4) | The following transactions have been completed through September 30, 2018: (a) real estate dispositions with net proceeds aggregating $76.0 million (See "Dispositions" on page 6 of this Earnings Press Release for additional information), (b) $806.5 million from our forward equity contracts, of which we have settled $200.2 million, and (c) sales of common stock under our ATM programs aggregating $496.3 million. We expect to receive proceeds of $606.3 million, to be further adjusted as provided in the forward equity sales agreements, upon settlement of the remaining forward equity sales agreements by April 2019. The proceeds of $606.3 million were calculated assuming the forward equity sales agreements will be settled entirely by the full physical delivery of shares of our common stock in exchange for cash proceeds. Although we expect to settle remaining forward equity sales agreements by the full physical delivery of shares of our common stock, we may elect cash settlement or net share settlement for all or a portion of our obligations under these agreements, either of which could result in no additional cash proceeds to us. |
(5) | See "Acquisitions" on page 5 of this Earnings Press Release for additional information. |
Earnings Call Information and About the Company September 30, 2018
We will host a conference call on Tuesday, October 30, 2018, at 3:00 p.m. Eastern Time ("ET")/noon Pacific Time ("PT"), which is open to the general public to discuss our financial and operating results for the third quarter ended September 30, 2018. To participate in this conference call, dial (833) 366-1125 or (412) 902-6738 shortly before 3:00 p.m. ET/noon PT and ask the operator to join the Alexandria Real Estate Equities, Inc. call. The audio webcast can be accessed at www.are.com in the "For Investors" section. A replay of the call will be available for a limited time from 5:00 p.m. ET/2:00 p.m. PT on Tuesday, October 30, 2018. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 10123167.
Additionally, a copy of this Earnings Press Release and Supplemental Information for the third quarter ended September 30, 2018, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2018q3.pdf.
For any questions, please contact Joel S. Marcus, executive chairman and founder; Stephen A. Richardson, co-chief executive officer; Peter M. Moglia, co-chief executive officer and co-chief investment officer; Dean A. Shigenaga, co-president and chief financial officer; or Sara M. Kabakoff, assistant vice president – corporate communications, at (626) 578-0777.
About the Company
Alexandria Real Estate Equities, Inc. (NYSE: ARE), an S&P 500® company, is an urban office real estate investment trust ("REIT") uniquely focused on collaborative life science and technology campuses in AAA innovation cluster locations, with a total market capitalization of $19.1 billion and an asset base in North America of 32.2 million square feet ("SF") as of September 30, 2018. The asset base in North America includes 21.6 million RSF of operating properties and 2.6 million RSF of development and redevelopment of new Class A properties currently undergoing construction and pre-construction activities with target delivery dates ranging from 2018 through 2019. Additionally, the asset base in North America includes 8.0 million SF of intermediate-term and future development projects. Founded in 1994, Alexandria pioneered this niche and has since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science and technology campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Alexandria also provides strategic capital to transformative life science and technology companies through our venture capital arm. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit www.are.com.
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This document includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding our 2018 earnings per share attributable to Alexandria's common stockholders – diluted, 2018 funds from operations per share attributable to Alexandria's common stockholders – diluted, net operating income, and our projected sources and uses of capital. You can identify the forward-looking statements by their use of forward-looking words, such as "forecast," "guidance," "projects," "estimates," "anticipates," "goals," "believes," "expects," "intends," "may," "plans," "seeks," "should," or "will," or the negative of those words or similar words. These forward-looking statements are based on our current expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts, as well as a number of assumptions concerning future events. There can be no assurance that actual results will not be materially higher or lower than these expectations. These statements are subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, without limitation, our failure to obtain capital (debt, construction financing, and/or equity) or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully place into service and lease any properties undergoing development or redevelopment and our existing space held for future development or redevelopment (including new properties acquired for that purpose), our failure to successfully operate or lease acquired properties, decreased rental rates, increased vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, adverse general and local economic conditions, an unfavorable capital market environment, decreased leasing activity or lease renewals, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission ("SEC"). Accordingly, you are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are made as of the date of this Earnings Press Release, and unless otherwise stated, we assume no obligation to update this information and expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.
Alexandria®, Lighthouse Design® logo, Building the Future of Life-Changing Innovation™, LaunchLabs®, Alexandria Center®, Alexandria Technology Square®, Alexandria Summit®, Alexandria Technology Center®, and Alexandria Innovation Center® are trademarks of Alexandria Real Estate Equities, Inc. All other company names, trademarks, and logos referenced herein are the property of their respective owners.
Consolidated Statements of Income September 30, 2018 (In thousands, except per share amounts) | ||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
9/30/18 | 6/30/18 | 3/31/18 | 12/31/17 | 9/30/17 | 9/30/18 | 9/30/17 | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||
Rental | $ | 255,496 | $ | 250,635 | $ | 244,485 | $ | 228,025 | $ | 216,021 | $ | 750,616 | $ | 635,156 | ||||||||||||||
Tenant recoveries | 81,051 | 72,159 | 73,170 | 70,270 | 67,058 | 226,380 | 188,874 | |||||||||||||||||||||
Other income | 5,276 | 2,240 | 2,484 | 496 | 2,291 | 10,000 | 5,276 | |||||||||||||||||||||
Total revenues | 341,823 | 325,034 | 320,139 | 298,791 | 285,370 | 986,996 | 829,306 | |||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||
Rental operations | 99,759 | 91,908 | 91,771 | 88,073 | 83,469 | 283,438 | 237,536 | |||||||||||||||||||||
General and administrative | 22,660 | 22,939 | 22,421 | 18,910 | 17,636 | 68,020 | 56,099 | |||||||||||||||||||||
Interest | 42,244 | 38,097 | 36,915 | 36,082 | 31,031 | 117,256 | 92,563 | |||||||||||||||||||||
Depreciation and amortization | 119,600 | 118,852 | 114,219 | 107,714 | 107,788 | 352,671 | 309,069 | |||||||||||||||||||||
Impairment of real estate | — | 6,311 | — | — | — | 6,311 | 203 | |||||||||||||||||||||
Loss on early extinguishment of debt | 1,122 | — | — | 2,781 | — | 1,122 | 670 | |||||||||||||||||||||
Total expenses | 285,385 | 278,107 | 265,326 | 253,560 | 239,924 | 828,818 | 696,140 | |||||||||||||||||||||
Equity in earnings of unconsolidated real estate joint ventures | 40,718 | 1,090 | 1,144 | 376 | 14,100 | 42,952 | 15,050 | |||||||||||||||||||||
Investment income(1) | 122,203 | (1) | 12,530 | 85,561 | — | — | 220,294 | — | ||||||||||||||||||||
Gain on sales of real estate – rental properties | — | — | — | — | — | — | 270 | |||||||||||||||||||||
Gain on sales of real estate – land parcels | — | — | — | — | — | — | 111 | |||||||||||||||||||||
Net income | 219,359 | 60,547 | 141,518 | 45,607 | 59,546 | 421,424 | 148,597 | |||||||||||||||||||||
Net income attributable to noncontrolling interests | (5,723) | (5,817) | (5,888) | (6,219) | (5,773) | (17,428) | (18,892) | |||||||||||||||||||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s stockholders | 213,636 | 54,730 | 135,630 | 39,388 | 53,773 | 403,996 | 129,705 | |||||||||||||||||||||
Dividends on preferred stock | (1,301) | (1,302) | (1,302) | (1,302) | (1,302) | (3,905) | (6,364) | |||||||||||||||||||||
Preferred stock redemption charge | — | — | — | — | — | — | (11,279) | |||||||||||||||||||||
Net income attributable to unvested restricted stock awards | (3,395) | (1,412) | (1,941) | (1,255) | (1,198) | (6,010) | (3,498) | |||||||||||||||||||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders | $ | 208,940 | $ | 52,016 | $ | 132,387 | $ | 36,831 | $ | 51,273 | $ | 394,081 | $ | 108,564 | ||||||||||||||
Net income per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders: | ||||||||||||||||||||||||||||
Basic | $ | 2.01 | $ | 0.51 | $ | 1.33 | $ | 0.39 | $ | 0.55 | $ | 3.86 | $ | 1.20 | ||||||||||||||
Diluted | $ | 1.99 | $ | 0.51 | $ | 1.32 | $ | 0.38 | $ | 0.55 | $ | 3.85 | $ | 1.20 | ||||||||||||||
Weighted-average shares of common stock outstanding: | ||||||||||||||||||||||||||||
Basic | 104,179 | 101,881 | 99,855 | 95,138 | 92,598 | 101,991 | 90,336 | |||||||||||||||||||||
Diluted | 105,385 | 102,236 | 100,125 | 95,914 | 93,296 | 102,354 | 90,766 | |||||||||||||||||||||
Dividends declared per share of common stock | $ | 0.93 | $ | 0.93 | $ | 0.90 | $ | 0.90 | $ | 0.86 | $ | 2.76 | $ | 2.55 | ||||||||||||||
(1) See "Investments" on page 42 of our Supplemental Information for additional information. | ||||||||||||||||||||||||||||
Consolidated Balance Sheets September 30, 2018 (In thousands) | ||||||||||||||||||||
9/30/18 | 6/30/18 | 3/31/18 | 12/31/17 | 9/30/17 | ||||||||||||||||
Assets | ||||||||||||||||||||
Investments in real estate | $ | 11,587,312 | $ | 11,190,771 | $ | 10,671,227 | $ | 10,298,019 | $ | 10,046,521 | ||||||||||
Investments in unconsolidated real estate joint ventures | 197,970 | 192,972 | 169,865 | 110,618 | 33,692 | |||||||||||||||
Cash and cash equivalents | 204,181 | 287,029 | 221,645 | 254,381 | 118,562 | |||||||||||||||
Restricted cash | 29,699 | 34,812 | 37,337 | 22,805 | 27,713 | |||||||||||||||
Tenant receivables | 11,041 | 8,704 | 11,258 | 10,262 | 9,899 | |||||||||||||||
Deferred rent | 511,680 | 490,428 | 467,112 | 434,731 | 402,353 | |||||||||||||||
Deferred leasing costs | 238,295 | 232,964 | 226,803 | 221,430 | 208,265 | |||||||||||||||
Investments | 957,356 | 790,753 | 724,310 | 523,254 | 485,262 | |||||||||||||||
Other assets | 368,032 | 333,757 | 291,639 | 228,453 | 213,056 | |||||||||||||||
Total assets | $ | 14,105,566 | $ | 13,562,190 | $ | 12,821,196 | $ | 12,103,953 | $ | 11,545,323 | ||||||||||
Liabilities, Noncontrolling Interests, and Equity | ||||||||||||||||||||
Secured notes payable | $ | 632,792 | $ | 776,260 | $ | 775,689 | $ | 771,061 | $ | 1,153,890 | ||||||||||
Unsecured senior notes payable | 4,290,906 | 4,289,521 | 3,396,912 | 3,395,804 | 2,801,290 | |||||||||||||||
Unsecured senior line of credit | 413,000 | — | 490,000 | 50,000 | 314,000 | |||||||||||||||
Unsecured senior bank term loans | 347,306 | 548,324 | 548,197 | 547,942 | 547,860 | |||||||||||||||
Accounts payable, accrued expenses, and tenant security deposits | 907,094 | 849,274 | 783,986 | 763,832 | 740,070 | |||||||||||||||
Dividends payable | 101,084 | 98,676 | 93,065 | 92,145 | 83,402 | |||||||||||||||
Total liabilities | 6,692,182 | 6,562,055 | 6,087,849 | 5,620,784 | 5,640,512 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Redeemable noncontrolling interests | 10,771 | 10,861 | 10,212 | 11,509 | 11,418 | |||||||||||||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity: | ||||||||||||||||||||
7.00% Series D cumulative convertible preferred stock | 74,386 | 74,386 | 74,386 | 74,386 | 74,386 | |||||||||||||||
Common stock | 1,058 | 1,033 | 1,007 | 998 | 943 | |||||||||||||||
Additional paid-in capital | 6,801,150 | 6,387,527 | 6,117,976 | 5,824,258 | 5,287,777 | |||||||||||||||
Accumulated other comprehensive (loss) income | (3,811) | (2,485) | 1,228 | 50,024 | 43,864 | |||||||||||||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity | 6,872,783 | 6,460,461 | 6,194,597 | 5,949,666 | 5,406,970 | |||||||||||||||
Noncontrolling interests | 529,830 | 528,813 | 528,538 | 521,994 | 486,423 | |||||||||||||||
Total equity | 7,402,613 | 6,989,274 | 6,723,135 | 6,471,660 | 5,893,393 | |||||||||||||||
Total liabilities, noncontrolling interests, and equity | $ | 14,105,566 | $ | 13,562,190 | $ | 12,821,196 | $ | 12,103,953 | $ | 11,545,323 | ||||||||||
Funds From Operations and Funds From Operations per Share September 30, 2018 (In thousands) | |||||||||||||||||||||||||||||
The following table presents a reconciliation of net income attributable to Alexandria's common stockholders, the most directly comparable financial measure presented in accordance with generally accepted accounting principles ("GAAP"), including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations attributable to Alexandria's common stockholders – diluted, and funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted, for the periods below: | |||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
9/30/18 | 6/30/18 | 3/31/18 | 12/31/17 | 9/30/17 | 9/30/18 | 9/30/17 | |||||||||||||||||||||||
Net income attributable to Alexandria's common stockholders – basic | $ | 208,940 | $ | 52,016 | $ | 132,387 | $ | 36,831 | $ | 51,273 | $ | 394,081 | $ | 108,564 | |||||||||||||||
Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1) | 1,301 | — | — | — | — | — | — | ||||||||||||||||||||||
Net income attributable to Alexandria's common stockholders – diluted | 210,241 | 52,016 | 132,387 | 36,831 | 51,273 | 394,081 | 108,564 | ||||||||||||||||||||||
Depreciation and amortization | 119,600 | 118,852 | 114,219 | 107,714 | 107,788 | 352,671 | 309,069 | ||||||||||||||||||||||
Noncontrolling share of depreciation and amortization from consolidated real estate JVs | (4,044) | (3,914) | (3,867) | (3,777) | (3,608) | (11,825) | (10,985) | ||||||||||||||||||||||
Our share of depreciation and amortization from unconsolidated real estate JVs | 1,011 | 807 | 644 | 432 | 383 | 2,462 | 1,119 | ||||||||||||||||||||||
Gain on sales of real estate – rental properties | — | — | — | — | — | — | (270) | ||||||||||||||||||||||
Our share of gain on sales of real estate from unconsolidated real estate JVs(2) | (35,678) | — | — | — | (14,106) | (35,678) | (14,106) | ||||||||||||||||||||||
Gain on sales of real estate – land parcels | — | — | — | — | — | — | (111) | ||||||||||||||||||||||
Impairment of real estate – rental properties | — | — | — | — | — | — | 203 | ||||||||||||||||||||||
Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1) | — | — | 1,302 | — | — | 3,905 | — | ||||||||||||||||||||||
Allocation to unvested restricted stock awards | (1,312) | (1,042) | (1,548) | (734) | (957) | (4,595) | (2,185) | ||||||||||||||||||||||
Funds from operations attributable to Alexandria's common stockholders – diluted(3) | 289,818 | 166,719 | 243,137 | 140,466 | 140,773 | 701,021 | 391,298 | ||||||||||||||||||||||
Unrealized gains on non-real estate investments | (117,188) | (5,067) | (72,229) | — | — | (194,484) | — | ||||||||||||||||||||||
Realized gain on non-real estate investment | — | — | (8,252) | — | — | (8,252) | — | ||||||||||||||||||||||
Impairment of land parcels and non-real estate investments | — | 6,311 | — | 3,805 | — | 6,311 | 4,491 | ||||||||||||||||||||||
Loss on early extinguishment of debt | 1,122 | — | — | 2,781 | — | 1,122 | 670 | ||||||||||||||||||||||
Our share of gain on early extinguishment of debt from unconsolidated real estate JVs(2) | (761) | — | — | — | — | (761) | — | ||||||||||||||||||||||
Preferred stock redemption charge | — | — | — | — | — | — | 11,279 | ||||||||||||||||||||||
Removal of assumed conversion of 7.00% Series D cumulative convertible preferred stock(1) | (1,301) | — | (1,302) | — | — | (3,905) | — | ||||||||||||||||||||||
Allocation to unvested restricted stock awards | 1,889 | (18) | 1,125 | (94) | — | 2,938 | (227) | ||||||||||||||||||||||
Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted | $ | 173,579 | $ | 167,945 | $ | 162,479 | $ | 146,958 | $ | 140,773 | $ | 503,990 | $ | 407,511 | |||||||||||||||
(1) | Our 7.00% Series D cumulative convertible preferred stock is assumed to be converted when basic EPS, FFO, or FFO, as adjusted, exceeds approximately $1.75 per share, subject to conversion ratio adjustments. See definition of "Weighted-Average Shares of Common Stock Outstanding – Diluted" of our Supplemental Information for additional information. |
(2) | Classified in equity in earnings of unconsolidated real estate joint ventures in our consolidated statements of income. |
(3) | Calculated in accordance with standards established by the Advisory Board of Governors of the National Association of Real Estate Investment Trusts (the "Nareit Board of Governors") in its April 2002 White Paper and related implementation guidance. |
The following table presents a reconciliation of net income per share attributable to Alexandria's common stockholders, the most directly comparable financial measure presented in accordance with GAAP, including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations per share attributable to Alexandria's common stockholders – diluted, and funds from operations per share attributable to Alexandria's common stockholders – diluted, as adjusted, for the periods below. Per share amounts may not add due to rounding. | |||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
9/30/18 | 6/30/18 | 3/31/18 | 12/31/17 | 9/30/17 | 9/30/18 | 9/30/17 | |||||||||||||||||||||||
Net income per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted | $ | 1.99 | $ | 0.51 | $ | 1.32 | $ | 0.38 | $ | 0.55 | $ | 3.85 | $ | 1.20 | |||||||||||||||
Depreciation and amortization | 1.11 | 1.13 | 1.08 | 1.08 | 1.11 | 3.35 | 3.26 | ||||||||||||||||||||||
Our share of gain on sales of real estate from unconsolidated real estate JVs | (0.34) | — | — | — | (0.15) | (0.35) | (0.15) | ||||||||||||||||||||||
Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1) | — | — | 0.01 | — | — | (0.01) | — | ||||||||||||||||||||||
Allocation to unvested restricted stock awards | (0.01) | (0.01) | — | — | — | (0.04) | — | ||||||||||||||||||||||
Funds from operations per share attributable to Alexandria's common stockholders – diluted(2) | 2.75 | 1.63 | 2.41 | 1.46 | 1.51 | 6.80 | 4.31 | ||||||||||||||||||||||
Unrealized gains on non-real estate investments | (1.11) | (0.05) | (0.70) | — | — | (1.90) | — | ||||||||||||||||||||||
Realized gain on non-real estate investment | — | — | (0.08) | — | — | (0.08) | — | ||||||||||||||||||||||
Impairment of land parcels and non-real estate investments | — | 0.06 | — | 0.04 | — | 0.06 | 0.05 | ||||||||||||||||||||||
Loss on early extinguishment of debt | 0.01 | — | — | 0.03 | — | 0.01 | 0.01 | ||||||||||||||||||||||
Our share of gain on early extinguishment of debt from unconsolidated real estate JVs | (0.01) | — | — | — | — | (0.01) | — | ||||||||||||||||||||||
Preferred stock redemption charge | — | — | — | — | — | — | 0.12 | ||||||||||||||||||||||
Removal of assumed conversion of 7.00% Series D cumulative convertible preferred stock(1) | — | — | (0.01) | — | — | 0.01 | — | ||||||||||||||||||||||
Allocation to unvested restricted stock awards | 0.02 | — | — | — | — | 0.03 | — | ||||||||||||||||||||||
Funds from operations per share attributable to Alexandria's common stockholders – diluted, as adjusted | $ | 1.66 | $ | 1.64 | $ | 1.62 | $ | 1.53 | $ | 1.51 | $ | 4.92 | $ | 4.49 | |||||||||||||||
Weighted-average shares of common stock outstanding(1) for calculations of: | |||||||||||||||||||||||||||||
Earnings per share – diluted | 105,385 | 102,236 | 100,125 | 95,914 | 93,296 | 102,354 | 90,766 | ||||||||||||||||||||||
Funds from operations – diluted, per share | 105,385 | 102,236 | 100,866 | 95,914 | 93,296 | 103,097 | 90,766 | ||||||||||||||||||||||
Funds from operations – diluted, as adjusted, per share | 104,641 | 102,236 | 100,125 | 95,914 | 93,296 | 102,354 | 90,766 | ||||||||||||||||||||||
(1) | See footnote 1 on prior page for additional information. |
(2) | Calculated in accordance with standards established by the Nareit Board of Governors in its April 2002 White Paper and related implementation guidance. |
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SOURCE Alexandria Real Estate Equities, Inc.