Alexandria Real Estate Equities, Inc. Reports First Quarter Ended March 31, 2013 Financial and Operating Results FFO Per Share - Diluted, of $1.11, Up 3%, for the Three Months Ended 1Q13 Over 1Q12

AFFO Per Share - Diluted of $1.08, Up 6%, for the Three Months Ended 1Q13 Over 1Q12

EPS − Diluted of $0.36, Up 20%, for the Three Months Ended 1Q13 Over 1Q12

Total Revenues of $150.4 Million, Up 11%, for the Three Months Ended 1Q13 Over 1Q12

NOI from Continuing Operations of $105.2 Million, Up 10%, for the Three Months Ended 1Q13 Over 1Q12

PASADENA, Calif., April 29, 2013 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the first quarter ended March 31, 2013.

First Quarter Ended March 31, 2013, Highlights

Results


  • Funds from operations ("FFO") attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, for the three months ended March 31, 2013, was $1.11 per share, up 3%, compared to FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, as adjusted, for the three months ended March 31, 2012, of $1.08 per share.
  • Adjusted funds from operations ("AFFO") attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, for the three months ended March 31, 2013, was $1.08 per share, up 6%, compared to AFFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, for the three months ended March 31, 2012, of $1.02 per share
  • Net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, for the three months ended March 31, 2013, was $0.36 per share, up 20%, compared to net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, for the three months ended March 31, 2012, of $0.30 per share

Core Operating Metrics

  • Total revenues were $150.4 Million, up 11%, for the three months ended March 31, 2013, compared to total revenues for the three months ended March 31, 2012, of $135.7 million
  • Net operating income ("NOI") was $105.2 million, up 10%, for the three months ended March 31, 2013, compared to NOI for the three months ended March 31, 2012, of $95.3 million
  • Investment-grade client tenants represented 46% of total annualized base rent ("ABR")
  • Investment-grade client tenants represented 78% of top 10 client tenants' ABR
  • Operating margins remained steady at 70% for the three months ended March 31, 2013
  • Annual rent escalations in 96% of leases
  • Same property net operating income increased by 8.8% and 0.4% on a cash and GAAP basis, respectively, for the three months ended March 31, 2013, compared to same property net operating income for the three months ended March 31, 2012
  • Solid leasing activity during the three months ended March 31, 2013
    • Executed 44 leases for 703,000 rentable square feet ("RSF"), including 457,000 RSF of development and redevelopment space
    • RSF of remaining expiring leases in 2013 are modest at 4.1% of total RSF
    • Rental rate increase of 5.9% and 12.7% on a cash and GAAP basis, respectively, on renewed/re-leased space
    • Key life science space leasing
      • ARIAD Pharmaceuticals, Inc. leased 244,000 RSF in the Greater Boston market
      • Onyx Pharmaceuticals, Inc. leased 107,250 RSF in the San Francisco Bay Area market
  • Occupancy of 94.2% for North America operating properties as of March 31, 2013, and occupancy of 91.8% for North America operating and redevelopment properties as of March 31, 2013, compared to occupancy of 94.6% for North America operating properties as of December 31, 2012, and occupancy of 91.6% for North America operating and redevelopment properties as of December 31, 2012

Value-Added Opportunities and External Growth

During the three months ended March 31, 2013, we executed leases aggregating 355,000 and 102,000 RSF, respectively, related to our development and redevelopment projects.

Our initial stabilized yield on a cash basis reflects cash rents at date of stabilization and does not reflect contractual rent escalations beyond the stabilization date.  Our cash rents related to our value-added projects are expected to increase over time and our average stabilized cash yields are expected, in general, to be greater than our initial stabilized yields.  Initial stabilized yield is calculated as the quotient of the estimated amounts of NOI and our investment in the property at stabilization ("Initial Stabilized Yield"). 

 

ALEXANDRIA REAL ESTATE EQUITIES, INC.
First Quarter Ended March 31, 2013, Financial and Operating Results
(Tabular dollar amounts in thousands, except per square foot amounts)
(Unaudited)

Development commencements

          The following table summarizes the commencement of key development projects: 

 










Investment




Initial





Commencement




Pre-Leased


at


Cost Per


Stabilized Yield


Key

Address/Market


Date


RSF


%


Completion

(1)

RSF


Cash


GAAP


Client Tenant

Development

















75/125 Binney Street/Greater Boston


January 2013


386,275


63%


$        351,439


$      910


8.0%


8.2%


ARIAD Pharmaceuticals, Inc.

269 East Grand Avenue/San Francisco Bay Area


March 2013


107,250


100%


$          51,300


$      478


8.1%


9.3%


Onyx Pharmaceuticals, Inc.


















(1)       See page 4 for additional details on current assumptions included in our guidance for funding the cost to complete the development of 75/125 Binney Street.

 

Balance Sheet Strategy and Significant Milestones

  • Balance sheet strategy continues to focus on our leverage of net debt to adjusted EBITDA of approximately 6.5x targeted by December 31, 2013, by funding our significant Class A development and redevelopment projects in top life science cluster locations with leverage-neutral sources of capital and with the continuing execution of our asset recycling program.  Our leverage will reflect periodic increases and decreases quarter to quarter as we execute and deliver our construction projects and execute our capital plan, including our asset sales program.  See "Sources and Uses" table on page 4 for additional information.  Our strategy to improve leverage includes:
    • Growth in annualized EBITDA from the fourth quarter 2012 to the fourth quarter 2013 due primarily to the completion of significant value-added projects; 93% leased
    • Asset recycling program to monetize non-strategic income-producing and non-income-producing assets will reduce outstanding debt and provide funds for reinvestment into Class A, CBD, and urban locations in close proximity to leading academic medical research centers
      • Sold $124.3 million of income-producing assets during the three months ended March 31, 2013; assets sold in first quarter of 2013 generated a weighted-average unlevered internal rate of return of 11% during our ownership period
      • Sales of $209 million to $259 million of non-income-producing assets targeted for remainder of the year ended December 31, 2013
        • $45 million of non-income-producing asset sales under negotiation
        • $60 million to $70 million projected partial sale of an interest in the ground-up development of 75/125 Binney Street
        • $104 million to $144 million to be identified in the near term
  • Minimizing the issuance of common equity to achieve net debt to adjusted EBITDA of approximately 6.5x targeted by December 31, 2013
  • Liquidity available under unsecured senior line of credit and from cash and cash equivalents was approximately $1.0 billion as of March 31, 2013
  • Unhedged variable rate debt as a percentage of total debt of less than 18% targeted by December 31, 2013

As of March of 2013, we have completed all significant sales of income-producing assets targeted for 2013.  The following table presents our completed real estate asset sales during the three months ended March 31, 2013:











Annualized




Sales


Gain/










Date




GAAP


Sales


Price


(Loss)


Unlevered


Description


Date of Purchase


Location


of Sale


RSF


NOI (1)


Price


per RSF


  on Sale (2)


IRR (3)


Sales completed in 1Q13




















1124 Columbia Street


May 1996


Seattle - First Hill


January 2013


203,817


$         6,802


$   42,600


$           209


$              −


11.9%


 

25/35/45 West Watkins Mill Road

1201 Clopper Road


 

October 1996

May 1998


 

Suburban Washington, D.C. - Gaithersburg


 

 

February 2013


 

 

282,523


 

 

$         7,795


 

 

41,400


 

 

$           147


 

 

$            53


 

 

11.2


 

One Innovation Drive

377 Plantation Street

381 Plantation Street


January 1999

September 1998

March 1999


Greater Boston - Route 495/Worcester


February 2013


300,313


$         6,605


40,250


$           134


$          (392)


9.6


Total/weighted average









$ 124,250






11.0%






















Sales completed in 2Q13




















702 Electronic Drive


June 1998


Pennsylvania


April 2013


40,171


$           438


$     4,362


$           109


$           268


10.0%


Total/weighted average










$     4,362






10.0%


 

(1)       Annualized using actual year-to-date results as of the quarter ended prior to date of sale or March 31, 2013.

(2)       Excludes impairment charges aggregating $11.4 million recognized during the year ended December 31, 2012.

(3)       See definition of Unlevered IRR in Non-GAAP Measures section on page 12.

In addition to the asset sales completed in the table above, we have targeted the sale of non-income-producing assets ranging from $209 million to $259 million in 2013. See page 3 for additional information.

ALEXANDRIA REAL ESTATE EQUITIES, INC.
First Quarter Ended March 31, 2013, Financial and Operating Results
(Unaudited)

GUIDANCE

Earnings outlook

Based on our current view of existing market conditions and certain current assumptions, we have updated guidance for earnings per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted and FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted for the year ended December 31, 2013, as set forth in the table below.  The table below provides a reconciliation of FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, a non-GAAP measure, to earnings per share, the most directly comparable GAAP measure and other key assumptions included in our guidance for the year ended December 31, 2013.

 

Guidance for the Year Ended December 31, 2013


Reported on April 29, 2013


Reported on February 7, 2013


Earnings per share attributable to Alexandria Real Estate

  Equities, Inc.'s common    stockholders – diluted


$1.43 to $1.59


$1.41 to $1.61


Depreciation and amortization


$2.95 to $3.11


$2.93 to $3.13


Loss on sale of real estate


$0.01



Other


$(0.01)



FFO per share attributable to Alexandria Real Estate

 Equities, Inc.'s common    stockholders – diluted


$4.46 to $4.62


$4.44 to $4.64








Key projection assumptions:






    Same property net operating income growth – cash basis


4% to 7%


4% to 7%


    Same property net operating income growth – GAAP basis


Up to 3%


0% to 3%


    Rental rate steps on lease renewals and re-leasing of space – cash basis


Up to 2%


Flat to slightly positive


    Rental rate steps on lease renewals and re-leasing of space – GAAP basis


Up 5% to 10%


Up 5% to 10%


    Occupancy percentage for all operating properties at December 31, 2013


93.9% to 94.3%


93.9% to 94.3%


    Straight-line rents


$24 to $26 million


$24 to $26 million


    Amortization of above and below market leases


$3 to $4 million


$3 to $4 million


    General and administrative expenses


$48 to $51 million


$48 to $51 million


    Capitalization of interest


$47 to $53 million


$47 to $53 million


    Interest expense, net


$74 to $84 million


$74 to $84 million


    Net debt to adjusted EBITDA for the annualized three months ended December 31, 2013


6.5x


6.5x


    Fixed charge coverage ratio for the annualized three months ended December 31, 2013


2.9x to 3.0x


2.9x to 3.0x


On a short-term basis, our unhedged variable rate debt as a percentage of total debt may range up to 30%. Our strategy is to have unhedged variable rate debt available for repayment as we issue unsecured senior notes payable, extend our maturity profile, transition variable rate debt to fixed rate debt, and enhance our long-term capital structure.  Our unhedged variable rate debt as a percentage of total debt is targeted to decrease to less than 18% by December 31, 2013.

Monetization of non-income-producing assets

Non-income-producing assets as a percentage of our gross investments in real estate is targeted to decrease to a range of 15% to 17% by December 31, 2013.  As of March 31, 2013, we had approximately $579 million and $141 million of construction in progress related to our five North American development and seven North American redevelopment projects, respectively.  The completion of these projects, along with recently delivered projects, certain future projects, and contributions from same properties, is expected to contribute significant increases in rental income, NOI, and cash flows.  Operating performance assumptions related to the completion of our North American development and redevelopment projects, including the timing of initial occupancy, stabilization dates, and Initial Stabilized Yields, are included on pages 5 and 6.  Certain key assumptions regarding our projections, including the impact of various development and redevelopment projects, are included in the tables above and on the following page.  

The completion of our development and redevelopment projects will result in increased interest expense and other direct project costs, because these project costs will no longer qualify for capitalization and these costs will be expensed as incurred.  Our projection assumptions for depreciation and amortization, general and administrative expenses, capitalization of interest, interest expense, net, and NOI growth are included in the tables on this page and are subject to a number of variables and uncertainties, including those discussed under the "Forward-looking Statements" section of Part I, the "Risk Factors" section of Item 1A, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section under Item 7, of our annual report on Form 10-K for the year ended December 31, 2012.  To the extent our full year earnings guidance is updated during the year, we will provide additional disclosure supporting reasons for any significant changes to such guidance.  Further, we believe NOI is a key performance indicator and is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not immediately apparent from income from continuing operations. 

          Our guidance for 2013 includes the following targeted sales of non-income-producing assets (in millions):



2013 Non-Income-Producing Asset Sales




Identified


TBD


Total


2013 non-income-producing asset sales initially targeted for 4Q12 closing








    Book value of land subject to sale negotiations


$                        34


$                       −


$                     34


    Subtotal


34



34










2013 non-income-producing asset sales initially projected on December 5, 2012








      Book value of land subject to sale negotiations


11



11


      Projected proceeds from the partial sale of the 75/125 Binney Street project (1)


60 - 70



60 - 70


      Future non-income-producing asset sales expected to be identified in the next several months



104 - 144


104 - 144


      Subtotal


71 - 81


104 - 144


175 - 225










Total 2013 non-income-producing asset sales target


$              105 - 115


$            104 - 144


$            209 - 259










(1)       See further details regarding our guidance related to our projected unconsolidated joint venture on page 4.

 

ALEXANDRIA REAL ESTATE EQUITIES, INC.
First Quarter Ended March 31, 2013, Financial and Operating Results
(Unaudited)

Sources and uses of capital

We expect that our principal liquidity needs for the year ended December 31, 2013, will be satisfied by the following multiple sources of capital as shown in the table below.  There can be no assurance that our sources and uses of capital will not be materially higher or lower than these expectations.  Our liquidity available under our unsecured senior line of credit and from cash and cash equivalents was approximately $1.0 billion as of March 31, 2013.



Reported on

April 29, 2013


Reported on

February 7, 2013


Sources and Uses of Capital for the Year Ended December 31, 2013 (in millions)


Completed


Projected


Total


Total


Sources of capital:










        Net cash provided by operating activities less dividends (1)


$                     34


$             96 - 116


$        130 - 150


$           130 - 150


        2013 asset sales initially targeted for 4Q12 closing


43


34

(2)

77


77


        2013 asset sales initially projected on December 5, 2012










                Non-income-producing



175 - 225

(2)

175 - 225


175 - 225


                Income-producing


82


0 - 13


82 - 95


75 - 125


        Secured construction loan borrowings


17


3 - 13


20 - 30


20 - 30


        Unsecured senior notes payable



350 - 450


350 - 450


350 - 450


        Issuances under "at the market" common stock offering program



125 - 175


125 - 175


125 - 175


Total sources of capital


$                   176


$        783 - 1,026


$     959 - 1,202


$        952 - 1,232












Uses of capital:










        Development, redevelopment, and construction (3)


$                   104


$           466 - 516


$        570 - 620


$           545 - 595


        Seller financing of asset sales (4)


39



39


39


        Acquisitions (5)






        Secured notes payable repayments


3


34


37


37


        Unsecured senior bank term loan repayment



125 - 175


125 - 175


125 - 175


        Paydown of unsecured senior line of credit


30


158 - 301


188 - 331


206 - 386


Total uses of capital


$                   176


$        783 - 1,026


$     959 - 1,202


$        952 - 1,232












(1)       See "Key Projection Assumptions" on the previous page.

(2)       See table at bottom of page 3 for further information.

(3)       Total construction spending for 2013 increased approximately $25 million at the mid-point of our guidance since last quarter primarily as a result of our estimated share of capital required for the commencement of two new ground-up development projects during the first quarter of 2013.  Our estimated construction spend for 2013 increased by approximately $13 million as a result of the commencement of our 100% pre-leased development at 269 East Grand Avenue.  The total estimated cost at completion for 75/125 Binney Street has not changed since our estimate as of December 31, 2012; however, the timing of construction and completion of our projected joint venture results in an increase in our estimated share of capital contributions to fund the completion of the project by approximately $10 million.  

(4)       Represents a $29.8 million note receivable with an interest rate of 3.25% and a maturity date of January 21, 2015, and a $9.0 million note receivable with an interest rate of 4.00% and a maturity date of March 1, 2019.

(5)       Our guidance has assumed no acquisitions, but we continuously and intensively review a pipeline of opportunistic acquisitions in our key core cluster markets that we would expect to fund on a leverage-neutral basis.

The key assumptions behind the sources and uses of capital in the table above are a favorable capital market environment and performance of our core operations in areas such as delivery of current and future development and redevelopment projects, leasing activity, and renewals.  Our expected sources and uses of capital are subject to a number of variables and uncertainties, including those discussed under the "Forward-looking statements" section of Part I, the "Risk Factors" section of Item 1A, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section under Item 7, of our annual report on Form 10-K for the year ended December 31, 2012.  We expect to update our forecast of sources and uses of capital on a quarterly basis.

Projected unconsolidated joint venture

Our guidance for the year ended December 31, 2013, assumes a transfer of 50% of our ownership interest in the 75/125 Binney Street project to a new joint venture partner which will be accounted for as a sale of an interest in our investment in the ground-up development, with the resulting entity presented as an unconsolidated joint venture (the "Binney JV") in our financial statements.  This projected sale of an interest in our investment in the ground-up development is included in our total non-income-producing asset sales target for 2013. We expect the sale proceeds to range from $60 million to $70 million and to exceed our share of the remaining investment of $44 million through the completion of the project.   We also anticipate the unconsolidated Binney JV to obtain a secured construction loan to fund 60% to 70% of the total project costs.

                The following assumptions are included in our guidance for funding the cost to complete the 75/125 Binney Street project (in millions).

 



Cost to Complete (1)




Nine Months Ended December 31, 2013


Thereafter


Total


75/125 Binney Street project – remaining cost to complete


$                              91


$                            163


$                     254










Projected unconsolidated joint venture funding:








Binney JV partner capital/Binney JV construction loan


(47)


(163)


(210)


ARE investment in Binney JV project


$                              44


$                               −


$                       44

(2)









 

(1)       Represent the mid points of our guidance assumptions related to estimated funding amounts provided by joint venture partner capital, joint venture construction loan, and Alexandria.
(2)       Represents our share of incremental investment into the Binney JV and is included in our guidance for 2013 development, redevelopment, and construction spending in a range from $570 million to $620 million. Binney JV partner capital and secured construction loan funding for 75/125 Binney Street related to our projected unconsolidated joint venture have been excluded from our construction spend forecast for 2013.

ALEXANDRIA REAL ESTATE EQUITIES, INC.
All Active Development Projects in North America
March 31, 2013
(Dollars in thousands, except per square foot amounts)
 (Unaudited)



Project RSF (1)


Leased Status RSF (1)

















% Leased/



Property/Market Submarket


CIP


Total


Leased


Negotiating


Marketing


Total


Negotiating


Client Tenants

All active development projects in North America

















         Consolidated development projects in North America

















225 Binney Street/Greater Boston – Cambridge


305,212


305,212


305,212




305,212


100%


Biogen Idec Inc.

499 Illinois Street/San Francisco Bay Area – Mission Bay


222,780


222,780



162,549


60,231


222,780


73%


TBA

269 East Grand Avenue/San Francisco Bay Area – South San Francisco


107,250


107,250


107,250




107,250


100%


Onyx Pharmaceuticals, Inc.

430 East 29th Street/Greater NYC – Manhattan


419,806


419,806


60,816


152,488

(2)

206,502


419,806


51%


Roche/TBA


















         Projected unconsolidated joint venture

















75/125 Binney Street/Greater Boston – Cambridge


386,275


386,275


244,123



142,152

(3)

386,275


63%


ARIAD Pharmaceuticals, Inc.


















Consolidated development projects in North America


1,441,323


1,441,323


717,401


315,037


408,885


1,441,323


72%




















         Unconsolidated joint venture

















360 Longwood Avenue/Greater Boston – Longwood


413,536


413,536


154,100



259,436


413,536


37%


Dana-Farber Cancer Institute, Inc.


















Total/weighted average


1,854,859


1,854,859


871,501


315,037


668,321


1,854,859


64%