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PASADENA, Calif., Oct. 25, 2021 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE:ARE) announced financial and operating results for the third quarter ended September 30, 2021.
Key highlights | YTD | |||||||||||||||
Operating results | 3Q21 | 3Q20 | 3Q21 | 3Q20 | ||||||||||||
Total revenues: | ||||||||||||||||
In millions | $ | 547.8 | $ | 545.0 | $ | 1,537.2 | $ | 1,421.9 | ||||||||
Growth | 0.5% | (1) | 8.1% | (1) | ||||||||||||
Net income attributable to Alexandria's common stockholders – diluted | ||||||||||||||||
In millions | $ | 101.3 | $ | 79.3 | $ | 490.6 | $ | 324.2 | ||||||||
Per share | $ | 0.67 | $ | 0.63 | $ | 3.38 | $ | 2.61 | ||||||||
Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted | ||||||||||||||||
In millions | $ | 296.0 | $ | 230.7 | $ | 841.3 | $ | 677.1 | ||||||||
Per share | $ | 1.95 | $ | 1.83 | $ | 5.80 | $ | 5.46 | ||||||||
(1) 3Q20 includes a termination fee of $89.5 million. Growth for 3Q21 and YTD 3Q21 was 20.2% and 15.4%, respectively, excluding this termination fee. | ||||||||||||||||
Strategic relationship with Moderna, Inc. leads to new HQ and R&D facility at 325 Binney Street, representing largest life science lease executed in Company history
In September 2021, we signed a 15-year full-building lease with Moderna, Inc. to develop, construct, and operate its new headquarters and core R&D facility at 325 Binney Street, a leading-edge 462,100 RSF property designed to be the most sustainable laboratory building in Cambridge, representing the largest life science lease in Company history.
Historic-high year-to-date leasing volume and continued strong rental rate growth
3Q21 | YTD 3Q21 | |||||||
Total leasing activity – RSF | 1,810,630 | 5,422,127 | ||||||
Leasing of development and redevelopment space – RSF | 1,005,890 | (1) | 2,071,750 | |||||
Lease renewals and re-leasing of space: | ||||||||
RSF (included in total leasing activity above) | 671,775 | 2,666,313 | ||||||
Rental rate increases | 35.3% | 39.4% | ||||||
Rental rate increases (cash basis) | 19.3% | 22.3% | ||||||
(1) Represents the second highest leasing quarter of development and redevelopment square footage in Company history. | ||||||||
Continued strong net operating income and internal growth
A REIT industry-leading high-quality tenant roster with high-quality revenues and cash flows, strong margins, and operational excellence
Percentage of annual rental revenue in effect from investment-grade or publicly traded large cap tenants | 53% | ||||
Occupancy of operating properties in North America | 94.4% | ||||
Occupancy of operating properties in North America (excluding vacancy at recently acquired properties) | 98.5% | (1) | |||
Operating margin | 70% | ||||
Adjusted EBITDA margin | 68% | ||||
Weighted-average remaining lease term: | |||||
All tenants | 7.4 | years | |||
Top 20 tenants | 10.6 | years | |||
(1) | Excludes 1.6 million RSF, or 4.1%, of vacancy at recently acquired properties, representing lease-up opportunities that are expected to provide incremental annual rental revenues in excess of $59 million upon full lease-up. Excluding acquired vacancies, occupancy was 98.5% as of September 30, 2021, up 80 bps from 97.7% as of December 31, 2020. Refer to "Occupancy" in our Supplemental Information. |
Credit rating outlook improvement
In October 2021, S&P Global Ratings upgraded our corporate issuer credit rating outlook to BBB+/Positive from BBB+/Stable as a result of our consistently strong operating performance and long-term positive fundamentals.
Strong and flexible balance sheet with significant liquidity
Continued dividend strategy to share growth in cash flows with stockholders
Common stock dividend declared for 3Q21 of $1.12 per common share, aggregating $4.42 per common share for the twelve months ended September 30, 2021, up 24 cents, or 6%, over the twelve months ended September 30, 2020. Our FFO payout ratio of 58% for the three months ended September 30, 2021, allows us to continue to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.
Sustained strength in tenant collections
Key items included in operating results
Key items included in net income attributable to Alexandria's common stockholders: | |||||||||||||||||||||||||||||||
YTD | |||||||||||||||||||||||||||||||
3Q21 | 3Q20 | 3Q21 | 3Q20 | 3Q21 | 3Q20 | 3Q21 | 3Q20 | ||||||||||||||||||||||||
(In millions, except per share amounts) | Amount | Per Share – Diluted | Amount | Per Share – Diluted | |||||||||||||||||||||||||||
Unrealized (losses) gains on non-real estate investments | $ | (14.4) | $ | (14.0) | $ | (0.10) | $ | (0.11) | $ | 183.3 | $ | 140.5 | $ | 1.26 | $ | 1.13 | |||||||||||||||
Significant realized gains on non-real estate investments | 52.4 | (1) | — | 0.35 | — | 110.1 | — | 0.76 | — | ||||||||||||||||||||||
(Loss) gain on sales of real estate | (0.4) | 1.6 | — | 0.01 | 2.3 | 1.6 | 0.02 | 0.01 | |||||||||||||||||||||||
Impairment of real estate | (42.6) | (1) | (7.7) | (0.28) | (0.06) | (52.7) | (30.5) | (0.37) | (0.24) | ||||||||||||||||||||||
Impairment of non-real estate investments | — | — | — | — | — | (24.5) | — | (0.20) | |||||||||||||||||||||||
Loss on early extinguishment of debt | — | (52.8) | — | (0.42) | (67.3) | (52.8) | (0.46) | (0.42) | |||||||||||||||||||||||
Termination fee(1) | — | 86.2 | — | 0.69 | — | 86.2 | — | 0.69 | |||||||||||||||||||||||
Acceleration of stock compensation expense due to executive officer resignation | — | (4.5) | — | (0.04) | — | (4.5) | — | (0.04) | |||||||||||||||||||||||
Total | $ | (5.0) | $ | 8.8 | $ | (0.03) | $ | 0.07 | $ | 175.7 | $ | 116.0 | $ | 1.21 | $ | 0.93 | |||||||||||||||
(1) Refer to "Funds from operations and funds from operations per share" of this Earnings Press Release for additional details. | |||||||||||||||||||||||||||||||
Alexandria at the vanguard of innovation for over 750 tenants, with a focus to accommodate current tenant needs plus a path for their future growth
During 3Q21, we completed acquisitions in our key life science cluster submarkets aggregating 5.6 million SF, comprising 4.9 million RSF of value-creation opportunities and 0.7 million RSF of operating space, for an aggregate purchase price of $989.7 million.
Robust leasing activity of development and redevelopment projects
Historically high demand for our value-creation development and redevelopment projects of high-quality office/laboratory space, as well as continued operational excellence at our world-class, sophisticated laboratory facilities, and strong execution by our team, has translated into record leases executed in the nine months ended September 30, 2021, aggregating 2.1 million RSF, related to our development and redevelopment projects.
Value-creation development and redevelopment projects expected to generate significant growth in rental revenues and cash flows
Our highly leased value-creation pipeline of current and near-term projects that are under construction or will commence in the next six quarters is expected to generate significant incremental revenues, as follows:
Under Construction | Key Projects Expected to Commence Construction in the Next Six Quarters(1) | Incremental Projected Annual Rental Revenues | |||
4.3 Million RSF | 3.4 Million RSF | > $615 Million | |||
37 Properties | + | 20 Properties | = | ||
79% Leased/Negotiating | 80% Leased/Negotiating | ||||
(1) We expect to commence construction of other projects in 2022. | |||||
Delivery of fully leased value-creation projects
Key strategic transactions that generated capital for investment into our highly leased value-creation pipeline and acquisitions with development and redevelopment opportunities
409 and 499 Illinois Street | 1500 Owens Street | ||||||||
(Dollars in thousands) | Alexandria | JV Partner | Alexandria | JV Partner | |||||
Previous ownership | 60% | 40% | 50.1% | 49.9% | |||||
Recapitalization in October 2021 | 25% | 75% | 25% | 75% | |||||
Sale of ownership interest | 35% | 25.1% | |||||||
Sales price (our share) | $274,681 | ||||||||
Capitalization rate | 5.0% | ||||||||
Capitalization rate (cash) | 4.2% | ||||||||
We retained control over these joint ventures and continue to consolidate them in our financial statements. Refer to "Dispositions and sales of partial interest" of this Earnings Press Release for additional details on these transactions.
Balance sheet management
Key metrics as of September 30, 2021
3Q21 | Goal | |||||||
Quarter | Trailing | 4Q21 | ||||||
Annualized | 12 Months | Annualized | ||||||
Net debt and preferred stock to Adjusted EBITDA | 5.8x | 6.2x | Less than or equal to 5.2x | |||||
Fixed-charge coverage ratio | 5.1x | 4.8x | Greater than or equal to 5.0x | |||||
Value-creation pipeline of new Class A development and redevelopment projects as a percentage of gross assets | 3Q21 | |
Under construction projects | 7% | |
Pre-leased/negotiating near-term projects and key pending acquisition | 2% | |
Income-producing/potential cash flows/covered land play(1) | 5% | |
Land | 2% | |
(1) | Includes projects that have existing buildings that are generating or can generate operating cash flows. Also includes development rights associated with existing operating campuses. |
Key capital events
Investments
Industry and ESG leadership: catalyzing and leading the way for positive change to benefit human health and society
Acquisitions September 30, 2021 (Dollars in thousands) | |||||||||||||||||||||||||
Square Footage | |||||||||||||||||||||||||
Acquisitions With Development/Redevelopment Opportunities(1) | |||||||||||||||||||||||||
Property | Submarket/Market | Date of Purchase | Number ofProperties | Operating Occupancy | Future Development | ActiveDevelopment/Redevelopment | Operating With Future Development/ Redevelopment | Operating(2) | Operating | Total | Purchase Price | ||||||||||||||
Completed in 1H21 | 49 | 95% | 4,507,706 | 980,934 | 1,571,982 | 2,238,467 | 80,032 | 8,631,231 | $ | 2,952,205 | |||||||||||||||
Completed in 3Q21: | |||||||||||||||||||||||||
Other | Other/Greater Boston | 8/24/21 | 4 | 45% | 440,992 | 453,869 | 173,276 | — | — | 1,068,137 | 192,000 | ||||||||||||||
1122 El Camino Real | South San Francisco/ San Francisco Bay Area | 9/14/21 | 1 | 100% | 700,000 | — | 223,232 | — | — | 700,000 | (3) | 105,250 | |||||||||||||
Pacific Technology Park (50% interest in consolidated JV) | Sorrento Mesa/San Diego | 8/5/21 | 5 | 100% | — | — | 228,871 | 315,481 | — | 544,352 | 85,750 | ||||||||||||||
Other | Other/San Diego | 7/21/21 | 9 | 77% | 64,235 | — | 211,440 | 98,428 | — | 374,103 | 135,484 | ||||||||||||||
3029 East Cornwallis Road | Research Triangle/ Research Triangle | 7/30/21 | — | N/A | 1,055,000 | — | — | — | — | 1,055,000 | 91,000 | ||||||||||||||
Other | Various | Various | 8 | 95% | 1,178,188 | — | 414,286 | 148,665 | 158,916 | 1,900,055 | 380,213 | ||||||||||||||
27 | 90% | 3,438,415 | 453,869 | 1,251,105 | (4) | 562,574 | (4) | 158,916 | (4) | 5,641,647 | 989,697 | ||||||||||||||
Completed in October 2021: | |||||||||||||||||||||||||
Other | 2 | 75% | — | — | 185,228 | — | — | 185,228 | 203,800 | ||||||||||||||||
Pending acquisition: | |||||||||||||||||||||||||
Charles Park | Cambridge/ Greater Boston | December 2021 | 2 | N/A | TBD(5) | 400,000 | — | — | — | 400,000 | 815,000 | ||||||||||||||
Total | 80 | 7,946,121 | 1,834,803 | 3,008,315 | 2,801,041 | 238,948 | 14,858,106 | $ | 4,960,702 | ||||||||||||||||
2021 guidance range | $4,460,000 – $5,460,000 | ||||||||||||||||||||||||
2022 pending acquisition: | |||||||||||||||||||||||||
Mercer Mega Block | Lake Union/Seattle | 1Q22(6) | — | N/A | 800,000 | — | — | — | — | 800,000 | $ | 143,500 | |||||||||||||
(1) | We expect to provide total estimated costs and related yields for development and redevelopment projects in the future, subsequent to the commencement of construction. Refer to "New Class A development and redevelopment properties: current projects" in our Supplemental Information for additional details on active development and redevelopment projects. |
(2) | Represents the operating component of our value-creation acquisitions that is not expected to undergo development or redevelopment. |
(3) | Represents total square footage upon completion of development or redevelopment of a new Class A property. Square footage presented includes RSF of buildings currently in operations with future development or redevelopment opportunities. We intend to demolish and develop or redevelop the existing properties upon expiration of the existing in-place leases. Refer to "Definitions and reconciliations" of this Supplemental Information for additional details on value-creation square feet currently included in rental properties. |
(4) | We expect the acquisitions completed during the three months ended September 30, 2021 to generate initial annual net operating income of $35.9 million. These acquisitions included 27 operating properties with a weighted-average acquisition date of July 26, 2021 (weighted by initial annual net operating income). |
(5) | We expect to pursue additional entitlement opportunities for future development of additional office/laboratory space. |
(6) | We continue to diligently work through various long-lead-time due diligence items. We are working toward completion of all due diligence items as soon as possible. |
Dispositions and Sales of Partial InterestSeptember 30, 2021 (Dollars in thousands) | ||||||||||||||||||||||||||||||
Property | Submarket/Market | Date of Sale | Interest Sold | RSF | Capitalization Rate | Capitalization Rate (Cash Basis) | Sales Price(1) | Sales Price per RSF | Considerationin Excess of Book Value(2) | |||||||||||||||||||||
Completed YTD 3Q21: | ||||||||||||||||||||||||||||||
213 East Grand Avenue | South San Francisco/ San Francisco Bay Area | 4/22/21 | 70% | 300,930 | 4.5% | 4.0% | $ | 301,000 | $ | 1,429 | $ | 103,679 | ||||||||||||||||||
400 Dexter Avenue North | Lake Union/Seattle | 7/23/21 | 70% | 290,111 | 4.1% | 4.2% | 254,814 | $ | 1,255 | $ | 95,467 | |||||||||||||||||||
260 Townsend Street | SoMa/San Francisco Bay Area | 7/30/21 | 100% | 66,682 | N/A | N/A | 49,000 | (3) | $ | 735 | (3) | |||||||||||||||||||
220 and 240 2nd Avenue South | SoDo/Seattle | 7/29/21 | 100% | 80,160 | N/A | N/A | 24,100 | $ | 301 | $ | — | |||||||||||||||||||
Land | Other/San Diego | 3/12/21 | 100% | 185,000 | N/A | N/A | 22,900 | N/A | (4) | |||||||||||||||||||||
9444 Waples Street | Sorrento Mesa/San Diego | 8/5/21 | 50% | 88,380 | N/A | N/A | 11,469 | $ | 260 | $ | — | |||||||||||||||||||
663,283 | ||||||||||||||||||||||||||||||
Completed in October 2021: | ||||||||||||||||||||||||||||||
409 and 499 Illinois Street | Mission Bay/San Francisco Bay Area | 10/5/21 | 35% | (5) | 455,069 | 5.0% | 4.2% | 274,681 | $ | 1,366 | $ | 113,756 | ||||||||||||||||||
1500 Owens Street | Mission Bay/San Francisco Bay Area | 10/5/21 | 25.1% | (5) | 158,267 | |||||||||||||||||||||||||
937,964 | ||||||||||||||||||||||||||||||
Pending dispositions or sales of partial interest: | ||||||||||||||||||||||||||||||
(6) | Greater Boston | 4Q21 | TBD | 800,000 | (7) | TBD | TBD | |||||||||||||||||||||||
(6) | San Francisco Bay Area | 4Q21 | TBD | 400,000 | (7) | TBD | TBD | |||||||||||||||||||||||
(8) | Various | 4Q21 | TBD | 500,000 | (7) | TBD | TBD | |||||||||||||||||||||||
$ | 2,637,964 | |||||||||||||||||||||||||||||
2021 guidance range | $ | 1,670,000 | – | $ | 2,670,000 | |||||||||||||||||||||||||
(1) | For sales of partial interests, represents the contractual sales price for the percentage interest of the property sold by us. |
(2) | For each partial interest sale, we retained control over the newly formed real estate joint venture and therefore continued to consolidate this property. We accounted for the difference between the consideration received and the book value of the interest sold as an equity transaction, with no gain or loss recognized in earnings. |
(3) | The sales price includes the assumption by the buyer of a secured loan for $28.2 million. Upon completion of the sale, we recognized a loss on sale of real estate aggregating $435 thousand. |
(4) | During the three months ended March 31, 2021, we recognized $2.8 million of gains on sales of real estate related to the completion of two real estate dispositions. |
(5) | Refer to "Key strategic transactions that generated capital for investment into our highly leased value-creation pipeline and acquisitions with development and redevelopment opportunities" on page 2 of this Earnings Press Release for additional details. |
(6) | Transactions are currently under negotiation of purchase and sale agreements. |
(7) | Represents the approximate aggregate sales price for each transaction. A significant amount of the proceeds from pending dispositions were subject to completion of lease negotiations prior to advancing the disposition process. |
(8) | Represents two transactions in early negotiations with potential buyers. |
Guidance September 30, 2021 (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, 2021. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. Also, refer to our discussion of "forward-looking statements" on page 7 of this Earnings Press Release for additional details. | ||||||||||
2021 Guidance | 2021 Guidance Midpoint | |||||||||
Summary of Key Changes in Guidance | As of 10/25/21 | As of 7/26/21 | Summary of Key Changes in Sources and Uses of Capital Guidance | As of 10/25/21 | As of 7/26/21 | |||||
EPS, FFO per share, and FFO per share, as adjusted | See updates below | Real estate dispositions and partial interest sales | $2,170 | $1,920 | ||||||
Occupancy(1) | 93.3% to 93.9% | 94.3% to 94.9% | Construction(2) | $2,110 | $1,910 | |||||
Rental rate increases | 33.0% to 36.0% | 31.0% to 34.0% | ||||||||
Rental rate increases (cash basis) | 19.0% to 22.0% | 18.0% to 21.0% | ||||||||
Projected 2021 Earnings per Share and Funds From Operations per Share Attributable to Alexandria's Common Stockholders – Diluted | ||||||||
As of 10/25/21 | As of 7/26/21 | |||||||
Earnings per share(3) | $3.91 to $3.93 | $3.46 to $3.54 | ||||||
Depreciation and amortization of real estate assets | 5.05 | 5.50 | ||||||
Gain on sales of real estate | (0.02) | (0.02) | ||||||
Impairment of real estate – rental properties(4) | 0.18 | 0.05 | ||||||
Allocation to unvested restricted stock awards | (0.04) | (0.04) | ||||||
Funds from operations per share(5) | $9.08 to $9.10 | $8.95 to $9.03 | ||||||
Unrealized gains on non-real estate investments | (1.26) | (1.39) | ||||||
Significant realized gains on non-real estate investments(4) | (0.76) | (0.41) | ||||||
Impairment of real estate(4) | 0.19 | 0.02 | ||||||
Loss on early extinguishment of debt | 0.46 | 0.47 | ||||||
Allocation to unvested restricted stock awards | 0.02 | 0.01 | ||||||
Other | 0.01 | 0.06 | ||||||
Funds from operations per share, as adjusted(5) | $7.74 to $7.76 | $7.71 to $7.79 | ||||||
Midpoint | $7.75 | $7.75 | ||||||
Key Assumptions | Low | High | |||||
Occupancy percentage in North America as of December 31, 2021(1) | 93.3% | 93.9% | |||||
Lease renewals and re-leasing of space: | |||||||
Rental rate increases | 33.0% | 36.0% | |||||
Rental rate increases (cash basis) | 19.0% | 22.0% | |||||
Same property performance: | |||||||
Net operating income increase | 2.0% | 4.0% | |||||
Net operating income increase (cash basis) | 4.7% | 6.7% | |||||
Straight-line rent revenue | $ | 119 | $ | 129 | |||
General and administrative expenses | $ | 146 | $ | 151 | |||
Capitalization of interest | $ | 172 | $ | 182 | |||
Interest expense | $ | 128 | $ | 138 | |||
Key Credit Metrics | 2021 Guidance | |
Net debt and preferred stock to Adjusted EBITDA – 4Q21 annualized | Less than or equal to 5.2x | |
Fixed-charge coverage ratio – 4Q21 annualized | Greater than or equal to 5.0x | |
Key Sources and Uses of Capital | Range | Midpoint | Certain Completed Items | ||||||||||
Sources of capital: | |||||||||||||
Net cash provided by operating activities after dividends | $ | 210 | $ | 250 | $ | 230 | |||||||
Incremental debt | 1,415 | 575 | 995 | ||||||||||
2020 debt capital proceeds held in cash | 150 | 250 | 200 | ||||||||||
Real estate dispositions and partial interest sales | 1,670 | 2,670 | 2,170 | $ | 938 | ||||||||
Common equity | 2,975 | 3,975 | 3,475 | $ | 3,533 | (6) | |||||||
Total sources of capital | $ | 6,420 | $ | 7,720 | $ | 7,070 | |||||||
Uses of capital: | |||||||||||||
Construction(2) | $ | 1,960 | $ | 2,260 | $ | 2,110 | |||||||
Acquisitions | 4,460 | 5,460 | 4,960 | $ | 4,146 | ||||||||
Total uses of capital | $ | 6,420 | $ | 7,720 | $ | 7,070 | |||||||
Incremental debt (included above): | |||||||||||||
Issuance of unsecured senior notes payable | $ | 1,750 | $ | 1,750 | $ | 1,750 | $ | 1,750 | |||||
Principal repayments of unsecured senior notes payable | (650) | (650) | (650) | $ | (650) | ||||||||
Unsecured senior line of credit, commercial paper, and other | 315 | (525) | (105) | ||||||||||
Incremental debt | $ | 1,415 | $ | 575 | $ | 995 | |||||||
(1) | Updated guidance for occupancy percentage in North America as of December 31, 2021, reflects vacancy at one recently acquired property that closed in 3Q21, and two pending acquisitions expected to close in 4Q21, representing lease-up opportunities that will contribute to growth in cash flows. One of the two pending acquisitions includes value-creation opportunities while the other pending acquisition is 50% under lease negotiation. Excluding vacancy at recently acquired properties, we expect occupancy for properties in North America as of December 31, 2021 to increase by approximately 100 bps compared to December 31, 2020. Refer to "Occupancy" of our Supplemental Information for additional details. |
(2) | Increase in construction guidance was primarily driven by recent pre-leasing/negotiating activity, which has provided additional visibility and accelerated our spending requirements on our active and near-term value-creation projects. |
(3) | Excludes unrealized gains or losses after September 30, 2021, that are required to be recognized in earnings and are excluded from funds from operations per share, as adjusted. |
(4) | Refer to "Funds from operations and funds from operations per share" of this Earnings Press Release for additional details. |
(5) | Refer to "Funds from operations and funds from operations, as adjusted, attributable to Alexandria's common stockholders" in "Definitions and reconciliations" of our Supplemental Information for additional details. |
(6) | Refer to "Key capital events" on page 3 of this Earnings Press Release for additional details. During the nine months ended September 30, 2021, we issued 16.2 million shares of common stock and received net proceeds of $2.8 billion. We expect to issue 4.6 million shares in 4Q21 to settle our remaining outstanding forward equity sales agreements and receive net proceeds of approximately $771.9 million. |
Earnings Call Information and About the CompanySeptember 30, 2021
We will host a conference call on Tuesday, October 26, 2021, 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, 2021. 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 call for Alexandria Real Estate Equities, Inc. 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 26, 2021. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 10159105.
Additionally, a copy of this Earnings Press Release and Supplemental Information for the third quarter ended September 30, 2021, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2021q3.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, president and chief financial officer; Paula Schwartz, managing director of Rx Communications Group, at (917) 322-2216; or Sara M. Kabakoff, vice president – communications, at (626) 578-0777.
About the Company
Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500® urban office real estate investment trust ("REIT"), is the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, agtech, and technology campuses in AAA innovation cluster locations, with a total market capitalization of $38.6 billion as of September 30, 2021, and an asset base in North America of 63.9 million square feet ("SF"). The asset base in North America includes 38.7 million RSF of operating properties and 4.3 million RSF of Class A properties undergoing construction, 8.9 million RSF of near-term and intermediate-term development and redevelopment projects, and 12.0 million SF of future development projects. Founded in 1994, Alexandria pioneered this niche and has since established a significant market presence in key locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science, agtech, 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, agtech, and technology companies through our venture capital platform. 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 2021 earnings per share attributable to Alexandria's common stockholders – diluted, 2021 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," "goals," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," "targets," 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, lower than expected yields, increased interest rates and operating costs, adverse economic or real estate developments in our markets (including the impact of the ongoing COVID-19 pandemic), 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, failure to obtain LEED and other healthy building certifications and efficiencies, 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 Supplemental Information, 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.
For additional discussion of the risks and other potential impacts posed by the outbreak of the COVID-19 pandemic and uncertainties we, our tenants, and the global and national economies face as a result, see the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K filed with the SEC on February 1, 2021.
Alexandria®, Lighthouse Design® logo, Building the Future of Life-Changing Innovation™, That's What's in Our DNA®, Labspace®, Alexandria Center®, Alexandria Technology Square®, Alexandria Technology Center®, and Alexandria Innovation Center® are copyrights and 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 OperationsSeptember 30, 2021 (Dollars in thousands, except per share amounts) | ||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
9/30/21 | 6/30/21 | 3/31/21 | 12/31/20 | 9/30/20 | 9/30/21 | 9/30/20 | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||
Income from rentals | $ | 546,527 | $ | 508,371 | $ | 478,695 | $ | 461,335 | $ | 543,412 | (1) | $ | 1,533,593 | $ | 1,416,873 | |||||||||||||
Other income | 1,232 | 1,248 | 1,154 | 2,385 | 1,630 | 3,634 | 5,044 | |||||||||||||||||||||
Total revenues | 547,759 | 509,619 | 479,849 | 463,720 | 545,042 | 1,537,227 | 1,421,917 | |||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||
Rental operations | 165,995 | 143,955 | 137,888 | 136,767 | 140,443 | 447,838 | 393,457 | |||||||||||||||||||||
General and administrative | 37,931 | 37,880 | 33,996 | 32,690 | 36,913 | 109,807 | 100,651 | |||||||||||||||||||||
Interest | 35,678 | 35,158 | 36,467 | 37,538 | 43,318 | 107,303 | 134,071 | |||||||||||||||||||||
Depreciation and amortization | 210,842 | 190,052 | 180,913 | 177,750 | 176,831 | 581,807 | 520,354 | |||||||||||||||||||||
Impairment of real estate | 42,620 | (1) | 4,926 | 5,129 | 25,177 | 7,680 | 52,675 | (1) | 22,901 | |||||||||||||||||||
Loss on early extinguishment of debt | — | — | 67,253 | 7,898 | 52,770 | 67,253 | 52,770 | |||||||||||||||||||||
Total expenses | 493,066 | 411,971 | 461,646 | 417,820 | 457,955 | 1,366,683 | 1,224,204 | |||||||||||||||||||||
Equity in earnings of unconsolidated real estate joint ventures | 3,091 | 2,609 | 3,537 | 3,593 | 3,778 | 9,237 | 4,555 | |||||||||||||||||||||
Investment income | 67,084 | 304,263 | 1,014 | 255,137 | 3,348 | 372,361 | 166,184 | |||||||||||||||||||||
(Loss) gain on sales of real estate | (435) | — | 2,779 | 152,503 | 1,586 | 2,344 | 1,586 | |||||||||||||||||||||
Net income | 124,433 | 404,520 | 25,533 | 457,133 | 95,799 | 554,486 | 370,038 | |||||||||||||||||||||
Net income attributable to noncontrolling interests | (21,286) | (19,436) | (17,412) | (15,649) | (14,743) | (58,134) | (40,563) | |||||||||||||||||||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s stockholders | 103,147 | 385,084 | 8,121 | 441,484 | 81,056 | 496,352 | 329,475 | |||||||||||||||||||||
Net income attributable to unvested restricted stock awards | (1,883) | (4,521) | (2,014) | (5,561) | (1,730) | (5,750) | (5,304) | |||||||||||||||||||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders | $ | 101,264 | $ | 380,563 | $ | 6,107 | $ | 435,923 | $ | 79,326 | $ | 490,602 | $ | 324,171 | ||||||||||||||
Net income per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders: | ||||||||||||||||||||||||||||
Basic | $ | 0.67 | $ | 2.61 | $ | 0.04 | $ | 3.26 | $ | 0.64 | $ | 3.39 | $ | 2.62 | ||||||||||||||
Diluted | $ | 0.67 | $ | 2.61 | $ | 0.04 | $ | 3.26 | $ | 0.63 | $ | 3.38 | $ | 2.61 | ||||||||||||||
Weighted-average shares of common stock outstanding: | ||||||||||||||||||||||||||||
Basic | 150,854 | 145,825 | 137,319 | 133,688 | 124,901 | 144,716 | 123,561 | |||||||||||||||||||||
Diluted | 151,561 | 146,058 | 137,688 | 133,827 | 125,828 | 145,153 | 124,027 | |||||||||||||||||||||
Dividends declared per share of common stock | $ | 1.12 | $ | 1.12 | $ | 1.09 | $ | 1.09 | $ | 1.06 | $ | 3.33 | $ | 3.15 | ||||||||||||||
(1) | Refer to "Funds from operations and funds from operations per share" of this Earnings Press Release for additional details. |
Consolidated Balance SheetsSeptember 30, 2021 (In thousands) | ||||||||||||||||||||
9/30/21 | 6/30/21 | 3/31/21 | 12/31/20 | 9/30/20 | ||||||||||||||||
Assets | ||||||||||||||||||||
Investments in real estate | $ | 23,071,514 | $ | 21,692,385 | $ | 20,253,418 | $ | 18,092,372 | $ | 17,600,648 | ||||||||||
Investments in unconsolidated real estate joint ventures | 321,737 | 323,622 | 325,928 | 332,349 | 330,792 | |||||||||||||||
Cash and cash equivalents | 325,872 | 323,876 | 492,184 | 568,532 | 446,255 | |||||||||||||||
Restricted cash | 42,182 | 33,697 | 42,219 | 29,173 | 38,788 | |||||||||||||||
Tenant receivables | 7,749 | 6,710 | 7,556 | 7,333 | 7,641 | |||||||||||||||
Deferred rent | 816,219 | 781,600 | 751,967 | 722,751 | 719,552 | |||||||||||||||
Deferred leasing costs | 329,952 | 321,005 | 294,328 | 272,673 | 266,440 | |||||||||||||||
Investments | 2,046,878 | 1,999,283 | 1,641,811 | 1,611,114 | 1,330,945 | |||||||||||||||
Other assets | 1,596,615 | 1,536,672 | 1,424,935 | 1,191,581 | 1,169,610 | |||||||||||||||
Total assets | $ | 28,558,718 | $ | 27,018,850 | $ | 25,234,346 | $ | 22,827,878 | $ | 21,910,671 | ||||||||||
Liabilities, Noncontrolling Interests, and Equity | ||||||||||||||||||||
Secured notes payable | $ | 198,758 | $ | 227,984 | $ | 229,406 | $ | 230,925 | $ | 342,363 | ||||||||||
Unsecured senior notes payable | 8,314,851 | 8,313,025 | 8,311,512 | 7,232,370 | 7,230,819 | |||||||||||||||
Unsecured senior line of credit and commercial paper | 749,978 | 299,990 | — | 99,991 | 249,989 | |||||||||||||||
Accounts payable, accrued expenses, and other liabilities | 2,149,450 | 1,825,387 | 1,750,687 | 1,669,832 | 1,609,340 | |||||||||||||||
Dividends payable | 173,560 | 170,647 | 160,779 | 150,982 | 143,040 | |||||||||||||||
Total liabilities | 11,586,597 | 10,837,033 | 10,452,384 | 9,384,100 | 9,575,551 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Redeemable noncontrolling interests | 11,681 | 11,567 | 11,454 | 11,342 | 11,232 | |||||||||||||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity: | ||||||||||||||||||||
Common stock | 1,532 | 1,507 | 1,457 | 1,367 | 1,333 | |||||||||||||||
Additional paid-in capital | 14,727,735 | 14,194,023 | 12,994,748 | 11,730,970 | 10,711,119 | |||||||||||||||
Accumulated other comprehensive loss | (6,029) | (4,508) | (5,799) | (6,625) | (10,638) | |||||||||||||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity | 14,723,238 | 14,191,022 | 12,990,406 | 11,725,712 | 10,701,814 | |||||||||||||||
Noncontrolling interests | 2,237,202 | 1,979,228 | 1,780,102 | 1,706,724 | 1,622,074 | |||||||||||||||
Total equity | 16,960,440 | 16,170,250 | 14,770,508 | 13,432,436 | 12,323,888 | |||||||||||||||
Total liabilities, noncontrolling interests, and equity | $ | 28,558,718 | $ | 27,018,850 | $ | 25,234,346 | $ | 22,827,878 | $ | 21,910,671 | ||||||||||
Funds From Operations and Funds From Operations per ShareSeptember 30, 2021 (In thousands) | ||||||||||||||||||||||||||||
The following table presents a reconciliation of net income (loss) attributable to Alexandria's common stockholders, the most directly comparable financial measure presented in accordance with U.S. 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 | |||||||||||||||||||||||||||
9/30/21 | 6/30/21 | 3/31/21 | 12/31/20 | 9/30/20 | 9/30/21 | 9/30/20 | ||||||||||||||||||||||
Net income attributable to Alexandria's common stockholders | $ | 101,264 | $ | 380,563 | $ | 6,107 | $ | 435,923 | $ | 79,326 | $ | 490,602 | $ | 324,171 | ||||||||||||||
Depreciation and amortization of real estate assets | 205,436 | 186,498 | 177,720 | 173,392 | 173,622 | 569,654 | 511,290 | |||||||||||||||||||||
Noncontrolling share of depreciation and amortization from consolidated real estate JVs | (17,871) | (16,301) | (15,443) | (15,032) | (15,256) | (49,615) | (46,901) | |||||||||||||||||||||
Our share of depreciation and amortization from unconsolidated real estate JVs | 3,465 | 4,135 | 3,076 | 2,976 | 2,936 | 10,676 | 8,437 | |||||||||||||||||||||
Loss (gain) on sales of real estate | 435 | — | (2,779) | (152,503) | (1,586) | (2,344) | (1,586) | |||||||||||||||||||||
Impairment of real estate – rental properties | 18,602 | (1) | 1,754 | 5,129 | 25,177 | 7,680 | 25,485 | 15,324 | ||||||||||||||||||||
Allocation to unvested restricted stock awards | (1,472) | (2,191) | (201) | (420) | (1,261) | (6,574) | (5,692) | |||||||||||||||||||||
Funds from operations attributable to Alexandria's common stockholders – diluted(2) | 309,859 | 554,458 | 173,609 | 469,513 | 245,461 | 1,037,884 | 805,043 | |||||||||||||||||||||
Unrealized losses (gains) on non-real estate investments | 14,432 | (244,031) | 46,251 | (233,538) | 14,013 | (183,348) | (140,495) | |||||||||||||||||||||
Significant realized gains on non-real estate investments | (52,427) | (3) | (34,773) | (22,919) | — | — | (110,119) | — | ||||||||||||||||||||
Impairment of non-real estate investments | — | — | — | — | — | — | 24,482 | |||||||||||||||||||||
Impairment of real estate | 24,018 | (4) | 3,172 | — | — | — | 27,190 | 15,221 | ||||||||||||||||||||
Loss on early extinguishment of debt | — | — | 67,253 | 7,898 | 52,770 | 67,253 | 52,770 | |||||||||||||||||||||
Termination fee | — | — | — | — | (86,179) | (5) | — | (86,179) | ||||||||||||||||||||
Acceleration of stock compensation expense due to executive officer resignation | — | — | — | — | 4,499 | — | 4,499 | |||||||||||||||||||||
Allocation to unvested restricted stock awards | 149 | 3,428 | (1,208) | 2,774 | 179 | 2,400 | 1,804 | |||||||||||||||||||||
Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted | $ | 296,031 | $ | 282,254 | $ | 262,986 | $ | 246,647 | $ | 230,743 | $ | 841,260 | $ | 677,145 | ||||||||||||||
(1) | Related to a property in a non-core submarket to reduce the carrying amount of the property to its estimated fair value less costs to sell, upon our review of the current local market conditions. |
(2) | Calculated in accordance with standards established by the Nareit Board of Governors. |
(3) | Includes three separate significant realized gains from the following transactions: (i) the sale of shares in an investment in a publicly traded biotechnology company, (ii) a distribution received from a limited partnership investment, and (iii) the acquisition of one of our privately held biotechnology investments by a publicly traded biotechnology company. |
(4) | Primarily related to an impairment charge of $22.5 million to reduce the carrying amount of an option to purchase a land parcel in our SoMa submarket for the development of an office property to its estimated fair value less costs to sell, upon our classification of the option as held for sale in September 2021. |
(5) | Represents termination fee of $89.5 million and related expenses of $3.3 million recognized during the three months ended September 30, 2020, upon termination of our contract with Pinterest, Inc. related to a lease at 88 Bluxome Street in our SoMa submarket. |
Funds From Operations and Funds From Operations per Share (continued)September 30, 2021 (In thousands, except per share amounts) | ||||||||||||||||||||||||||||
The following table presents a reconciliation of net income (loss) 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 | |||||||||||||||||||||||||||
9/30/21 | 6/30/21 | 3/31/21 | 12/31/20 | 9/30/20 | 9/30/21 | 9/30/20 | ||||||||||||||||||||||
Net income per share attributable to Alexandria's common stockholders – diluted | $ | 0.67 | $ | 2.61 | $ | 0.04 | $ | 3.26 | $ | 0.63 | $ | 3.38 | $ | 2.61 | ||||||||||||||
Depreciation and amortization of real estate assets | 1.26 | 1.19 | 1.20 | 1.21 | 1.28 | 3.66 | 3.81 | |||||||||||||||||||||
Loss (gain) on sales of real estate | — | — | (0.02) | (1.14) | (0.01) | (0.02) | (0.01) | |||||||||||||||||||||
Impairment of real estate – rental properties | 0.12 | 0.01 | 0.04 | 0.19 | 0.06 | 0.18 | 0.12 | |||||||||||||||||||||
Allocation to unvested restricted stock awards | (0.01) | (0.01) | — | (0.01) | (0.01) | (0.05) | (0.04) | |||||||||||||||||||||
Funds from operations per share attributable to Alexandria's common stockholders – diluted | 2.04 | 3.80 | 1.26 | 3.51 | 1.95 | 7.15 | 6.49 | |||||||||||||||||||||
Unrealized losses (gains) on non-real estate investments | 0.10 | (1.67) | 0.34 | (1.75) | 0.11 | (1.26) | (1.13) | |||||||||||||||||||||
Significant realized gains on non-real estate investments | (0.35) | (0.24) | (0.17) | — | — | (0.76) | — | |||||||||||||||||||||
Impairment of non-real estate investments | — | — | — | — | — | — | 0.20 | |||||||||||||||||||||
Impairment of real estate | 0.16 | 0.02 | — | — | — | 0.19 | 0.12 | |||||||||||||||||||||
Loss on early extinguishment of debt | — | — | 0.49 | 0.06 | 0.42 | 0.46 | 0.42 | |||||||||||||||||||||
Termination fee | — | — | — | — | (0.69) | — | (0.69) | |||||||||||||||||||||
Acceleration of stock compensation expense due to executive officer resignation | — | — | — | — | 0.04 | — | 0.04 | |||||||||||||||||||||
Allocation to unvested restricted stock awards | — | 0.02 | (0.01) | 0.02 | — | 0.02 | 0.01 | |||||||||||||||||||||
Funds from operations per share attributable to Alexandria's common stockholders – diluted, as adjusted | $ | 1.95 | $ | 1.93 | $ | 1.91 | $ | 1.84 | $ | 1.83 | $ | 5.80 | $ | 5.46 | ||||||||||||||
Weighted-average shares of common stock outstanding – diluted | 151,561 | 146,058 | 137,688 | 133,827 | 125,828 | 145,153 | 124,027 | |||||||||||||||||||||
SOURCE Alexandria Real Estate Equities, Inc.
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