Alexandria Real Estate Equities, Inc. Reports First Quarter Ended March 31, 2014 Financial and Operating Results

Core Operations Continue to Deliver Solid Results

FFO Per Share - Diluted for 1Q14 up 5.4% over 1Q13

EPS - Diluted of $0.46 for 1Q14

FFO Per Share - Diluted of $1.17 for 1Q14

Total Revenues of $176.2 Million for 1Q14

NOI of $123.7 Million for 1Q14

May 05, 2014, 16:05 ET from Alexandria Real Estate Equities, Inc.

PASADENA, Calif., May 5, 2014 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the first quarter ended March 31, 2014.              

"Our first quarter results in 2014 continued to highlight the momentum of our improving fundamentals, which is driving stable and solid growth.  The sustained migration into Class A collaborative science and technology campuses in urban innovation clusters continues to drive demand for our properties.  The solid operating performance we achieved in 2013 continued into the first quarter of 2014 and included (i) solid same property NOI increase of 4.3% on a cash basis, (ii) strong rental rate growth of 10.4% on a cash basis related to lease renewals and re-leasing of space, and (iii) continued significant growth in NOI from our recently delivered value-creation developments.

"Our leasing volume was considerable, particularly in light of the extremely low level of contractual lease expirations in 2014.  Occupancy in 2014 continued to increase to record levels and we completed $142.7 million of acquisitions thus far in 2014.  We repaid $210.8 million of secured notes payable in the first quarter of 2014.  We also expect to opportunistically issue unsecured bonds in 2014.  Our Class A developments maintained their  path towards stabilization with our 499 Illinois Street project in Mission Bay now 98% leased and our 430 East 29th Street project at our flagship Alexandria Center™ for Life Science in Manhattan up to 69% leased or under negotiation.  Our confidence in our ability to continue per-share earnings growth and increase shareholder net asset value in 2014 and beyond remains on track," said Joel S. Marcus, Chairman, Chief Executive Officer, and Founder of Alexandria Real Estate Equities, Inc.

20th anniversary

Celebration of important milestone in Company's history

  • Alexandria was founded in 1994 by Joel S. Marcus and Jerry Sudarsky, who envisioned a unique class of real estate and related services focused on the broad, diverse and rapidly expanding life science industry.
  • With a business plan and $19 million of seed capital, the Company acquired its first assets in 1994 and soon thereafter expanded into multiple cluster markets.
  • In 1997, the Company filed for an initial public offering ("IPO") as the first Real Estate Investment Trust ("REIT") uniquely focused on the life science industry.
  • Since that time, Mr. Marcus facilitated the Company's growth into the largest and leading brand in every major urban collaborative science and technology cluster in the United States, including Greater Boston, the San Francisco Bay Area, Greater New York City, Seattle, San Diego, Maryland and Research Triangle Park.
  • Alexandria also initiated and led the development of the world's newest science and technology clusters in Mission Bay, San Francisco, where Alexandria has developed over one million square feet of Class A space, and in New York City, where Alexandria has developed Manhattan's first and only commercial Class A collaborative science and technology campus, the Alexandria Center™ for Life Science.
  • Alexandria also founded the Alexandria Summit™, an annual, invitation-only gathering of the world's foremost visionaries to advance critical issues in science and technology.
  • Since its founding, Alexandria has grown its total market capitalization to approximately $9 billion and generated a total return of 579% from its IPO through March 31, 2014.

Results

  • Net income attributable to Alexandria Real Estate Equities, Inc.'s ("Alexandria's") common stockholders – diluted of $32.7 million, or $0.46 per share, for 1Q14 compared to $22.4 million, or $0.36 per share, for 1Q13
  • Funds from operations ("FFO") attributable to Alexandria's common stockholders – diluted, of $83.1 million for 1Q14 compared to $70.0 million for 1Q13
    • Up 5.4% to $1.17 per share for 1Q14 compared to $1.11 per share for 1Q13

Core operating metrics

  • Total revenues of $176.2 million for 1Q14, up $26.1 million, or 17.4%, compared to $150.1 million for 1Q13
  • Net operating income ("NOI") of $123.7 million for 1Q14, up $18.8 million, or 17.9%, compared to $104.9 million for 1Q13
  • Same property NOI growth for 1Q14 compared to 1Q13:
    • Up 3.8%
    • Up 4.3% (cash basis)
  • Leasing activity during 1Q14:
    • Executed 49 leases for 563,394 rentable square feet ("RSF")
    • Rental rate increases on 1Q14 lease renewals and re-leasing of space:
      • Up 18.2%
      • Up 10.4% (cash basis)
  • Occupancy for properties in North America, as of 1Q14:
    • 96.6% occupancy for operating properties, up 240 basis points ("bps") from 1Q13
    • 95.1% occupancy for operating and redevelopment properties, up 330 bps from 1Q13
  • Operating margins steady at 70% for 1Q14
  • 52% of total annualized base rent ("ABR") from investment-grade client tenants

External growth: value-creation projects and acquisitions

Value-creation projects

  • 79% of our development and redevelopment projects aggregating 1,768,493 RSF in North America are leased or under lease negotiations
  • Commenced redevelopment of the following projects in 1Q14:
    • 225 Second Avenue, a 112,500 RSF project in the Route 128 submarket of Greater Boston (acquired in 1Q14)
    • 10121 Barnes Canyon Road, a 53,512 RSF project in the Sorrento Mesa submarket of San Diego (acquired in 3Q13)

Acquisitions

  • Completed three acquisitions in 1Q14:
    • Two acquisitions aggregating 159,122 RSF with occupancy of 100% in the San Diego market for $76.4 million, and
    • A redevelopment property aggregating 112,500 RSF (under lease negotiation for 100% of the space) in the Greater Boston market for $16.3 million

Balance sheet

  • Liquidity of $1.3 billion as of 1Q14, consisting of $994.0 million available under our unsecured senior line of credit, $244.4 million available under our construction loan commitments, and $75.0 million in cash and cash equivalents
  • Repaid a $208.7 million secured note payable related to Alexandria Technology Square®, with an effective interest rate of 5.59%.
  • Unencumbered NOI as a percentage of total NOI increased to 83% for 1Q14 from 69% for 4Q13
  • Entered into interest rate swap agreements with an aggregate notional amount of $200.0 million to provide a minimum notional balance of hedged variable-rate debt of $950.0 million in 2014

LEED certifications

  • As of 1Q14, our asset base had 25 LEED Certified projects, including two LEED Platinum projects, 16 LEED Gold projects, and seven LEED Silver projects.  Upon completion of an additional 21 in-process certifications, 50% of the total RSF of our continuing operations asset base will be LEED Certified.

Subsequent events

Amended and extended employment agreement with Mr. Marcus

  • In April 2014, the Board of Directors amended and extended the term of the employment agreement with Joel S. Marcus through December 31, 2016, subject to an extension to December 31, 2018, in the form of an option, exercisable by either the Company or Mr. Marcus, for Mr. Marcus to serve as full-time Executive Chairman.
  • We believe changes in compensation arrangements appropriately address expressed concerns on the 2013 say-on-pay vote, and better align pay-for-performance, while at the same time continuing to retain Mr. Marcus's highly valuable services.

Acquisition of 500 Townsend Street

  • In April 2014, we acquired a land parcel, supporting approximately 300,000 gross square feet, in the SoMa submarket of San Francisco for a purchase price of $50.0 million.
  • We are in the process of perfecting entitlements, marketing for lease, and plan to commence construction as soon as possible in 2015.

Guidance

Based on our current view of existing market conditions and other assumptions, we have updated guidance for earnings per share -- diluted and FFO per share -- diluted, both amounts attributable to Alexandria's common stockholders, and updated the sources and uses of capital for the year ended December 31, 2014.  The table below provides a reconciliation of FFO per share – diluted, a non-GAAP measure, from earnings per share – diluted, the most directly comparable GAAP measure, as well as other key assumptions included in our guidance for the year ended December 31, 2014.  We expect that our principal liquidity needs for the year ended December 31, 2014, will be satisfied by 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.  The key assumptions behind the sources and uses of capital 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 lease 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 under Part I and the "Risk Factors" section under Item 1A of our annual report on Form 10-K for the year ended December 31, 2013.  We expect to update our forecast of sources and uses of capital on a quarterly basis.

 

2014 Guidance

EPS and FFO Per Share

Low – High

Earnings per share attributable to Alexandria's common stockholders – diluted

$1.75 – $1.85

Add back: depreciation and amortization

2.97

Other

(0.02)

FFO per share attributable to Alexandria's common stockholders – diluted

$4.70 – $4.80

 

2014 Sources and Uses of Capital

(Dollars in thousands)

Low

High

Sources of capital:

Unsecured senior notes payable

$

500,000

$

600,000

Secured loan additions (construction loans and assumed debt) (1)

100,000

223,000

Secured notes payable repayments (2)

(210,000)

(210,000)

Activity on our unsecured senior line of credit and senior unsecured term loan

50,000

(133,000)

Net sources of debt capital

440,000

480,000

Net cash provided by operating activities after dividends

100,000

120,000

Land sales/strategic joint venture capital

145,000

245,000

Total sources of capital

$

685,000

$

845,000

Uses of capital:

Construction

$

585,000

$

645,000

Acquisitions

100,000

200,000

Total uses of capital

$

685,000

$

845,000

 

2014 Key Assumptions

(Dollars in thousands)

Low

High

Occupancy percentage for operating properties at December 31, 2014:

North America

96.5%

97.0%

Lease renewals and re-leasing of space:

Rental rate increases

10%

13%

Rental rate increases (cash basis)

3%

5%

Same property performance:

NOI increase

2%

4%

NOI increase (cash basis)

4%

6%

Straight-line rents

$

42,000

$

47,000

General and administrative expenses

$

48,000

$

52,000

Capitalization of interest

$

37,000

$

47,000

Interest expense

$

76,000

$

92,000

(1) Includes two non-recourse secured notes payable aggregating $48.3 million assumed in connection with the acquisition of two operating assets in 1Q14.

(2) Represents the principal amortization payments and balloon payments at maturity on all of our secured notes payable, including one secured note payable related to Alexandria Technology Square®, which was repaid on January 31, 2014. This amount is net of the $20.9 million that was funded by our 10% joint venture partner.

Earnings Call Information

We will host a conference call on Tuesday, May 6, 2014, at 3:00 p.m. Eastern Time ("ET")/12:00 p.m. noon Pacific Time ("PT") that is open to the general public to discuss our financial and operating results for the first quarter ended March 31, 2014.  To participate in this conference call, dial (877) 857-6150 or (719) 325-4837 and confirmation code 1577029 shortly before 3:00 p.m. ET/12:00 p.m. noon PT.  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 6:00 p.m. ET/3:00 p.m. PT on Tuesday, May 6, 2014.  The replay number is (888) 203-1112 or (719) 457-0820 and the confirmation code is 1577029.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the first quarter ended March 31, 2014, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2014q1.pdf.  

About the Company

Alexandria Real Estate Equities, Inc. (NYSE: ARE) is a fully integrated, self-administered and self-managed REIT uniquely focused on Class A collaborative science and technology campuses in urban innovation clusters including Greater Boston, the San Francisco Bay Area, New York City, Seattle, San Diego, Maryland, and Research Triangle Park.  Alexandria is the largest and leading owner, operator and developer in its niche with a total market capitalization of approximately $9 billion as of March 31, 2014, and an asset base of 31.2 million RSF, including 17.7 million RSF of operating and current value-creation projects, as well as an additional 13.5 million RSF in future ground-up development projects.

***********

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 2014 earnings per share attributable to Alexandria's common stockholders – diluted, 2014 FFO per share attributable to Alexandria's common stockholders – diluted, NOI, and our projected sources and uses of capital for the year ended December 31, 2014.  You can identify the forward-looking statements by their use of forward-looking words, such as "believes," "expects," "may," "will," "should," "seeks," "intends," "plans," "estimates," "anticipates," or "projects," 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.  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 complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, 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 client tenants, general and local economic conditions, 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 May 5, 2014, the date this document was first made available on our website, 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.

 

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

3/31/14

12/31/13

9/30/13

6/30/13

3/31/13

Revenues:

Rental

$

130,570

$

125,693

$

116,052

$

114,493

$

111,526

Tenant recoveries

41,682

39,970

38,691

35,869

35,565

Other income

3,934

3,160

3,572

3,568

2,992

Total revenues

176,186

168,823

158,315

153,930

150,083

Expenses:

Rental operations

52,507

49,892

47,684

46,277

45,186

General and administrative

13,224

12,751

11,666

12,455

11,648

Interest

19,123

17,783

16,171

15,978

18,020

Depreciation and amortization

50,421

48,084

48,866

46,344

45,829

Loss on early extinguishment of debt

1,432

560

Total expenses

135,275

128,510

125,819

121,614

120,683

Income from continuing operations

40,911

40,313

32,496

32,316

29,400

(Loss) income from discontinued operations

(162)

(143)

(43)

249

837

Gain on sale of land parcel

4,052

772

Net income

40,749

44,222

32,453

33,337

30,237

Net income attributable to noncontrolling interests

1,195

1,110

960

980

982

Dividends on preferred stock

6,471

6,471

6,472

6,471

6,471

Net income attributable to unvested restricted stock awards

374

394

442

403

342

Net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders

$

32,709

$

36,247

$

24,579

$

25,483

$

22,442

Earnings per share attributable to Alexandria's common stockholders – basic and diluted:

Continuing operations

$

0.46

$

0.51

$

0.35

$

0.38

$

0.35

Discontinued operations

0.01

Earnings per share – basic and diluted

$

0.46

$

0.51

$

0.35

$

0.38

$

0.36

Weighted average shares of common stock outstanding for calculating earnings per share attributable to Alexandria's common stockholders:

– Basic

71,073

71,000

70,900

66,973

63,161

– Diluted

71,073

71,000

70,900

66,973

63,161

 

 

 

Consolidated Balance Sheets

(In thousands)

(Unaudited)

3/31/14

12/31/13

9/30/13

6/30/13

3/31/13

Assets

Investments in real estate, net

$

6,930,262

$

6,776,914

$

6,613,761

$

6,453,379

$

6,375,182

Cash and cash equivalents

74,970

57,696

53,839

302,205

87,001

Restricted cash

30,454

27,709

30,654

30,914

30,008

Tenant receivables

10,619

9,918

8,671

7,577

9,261

Deferred rent

202,087

190,425

182,909

177,507

170,100

Deferred leasing and financing costs, net

192,618

192,658

179,805

164,362

159,872

Investments

169,322

(1)

140,288

129,163

122,605

123,543

Other assets

145,707

134,156

159,567

120,740

135,952

Total assets

$

7,756,039

$

7,529,764

$

7,358,369

$

7,379,289

$

7,090,919

Liabilities, Noncontrolling Interests, and Equity

Secured notes payable

$

597,511

$

708,831

$

708,653

$

711,029

$

730,714

Unsecured senior notes payable

1,048,270

1,048,230

1,048,190

1,048,395

549,816

Unsecured senior line of credit

506,000

204,000

14,000

554,000

Unsecured senior bank term loans

1,100,000

1,100,000

1,100,000

1,200,000

1,350,000

Accounts payable, accrued expenses, and tenant security deposits

443,893

435,342

452,139

368,249

367,153

Dividends payable

55,860

54,420

54,413

52,141

43,955

Total liabilities

3,751,534

3,550,823

3,377,395

3,379,814

3,595,638

Commitments and contingencies

Redeemable noncontrolling interests

14,413

14,444

14,475

14,505

14,534

Alexandria Real Estate Equities, Inc.'s stockholders' equity:

Series D cumulative convertible preferred stock

250,000

250,000

250,000

250,000

250,000

Series E cumulative redeemable preferred stock

130,000

130,000

130,000

130,000

130,000

Common stock

712

712

711

710

633

Additional paid-in capital

3,560,453

3,572,281

3,578,343

3,596,477

3,075,860

Accumulated other comprehensive loss

(18,429)

(36,204)

(40,026)

(39,565)

(22,890)

Alexandria's stockholders' equity

3,922,736

3,916,789

3,919,028

3,937,622

3,433,603

Noncontrolling interests

67,356

(2)

47,708

47,471

47,348

47,144

Total equity

3,990,092

3,964,497

3,966,499

3,984,970

3,480,747

Total liabilities, noncontrolling interests, and equity

$

7,756,039

$

7,529,764

$

7,358,369

$

7,379,289

$

7,090,919

 

(1) Increase in our investments in 1Q14 was primarily related to an increase in unrealized gains of approximately $18.8 million related to our investments in publicly traded life science companies. These unrealized gains are a component of our comprehensive income, within our stockholders' equity, and have not been recognized in the income statement for 1Q14.

(2) Increase in our noncontrolling interests in 1Q14 due to a contribution from our 10% joint venture partner at Alexandria Technology Square® received in connection with the repayment of a $208.7 million secured note during the period.

               

 

Funds From Operations and Adjusted Funds From Operations

(In thousands)

(Unaudited)

      The following table presents a reconciliation of net income attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with GAAP, to FFO attributable to Alexandria's common stockholders – basic and diluted, FFO attributable to Alexandria's common stockholders – diluted, as adjusted, and AFFO attributable to Alexandria's common stockholders – diluted.

Three Months Ended

3/31/14

12/31/13

9/30/13

6/30/13

3/31/13

Net income attributable to Alexandria's common stockholders

$

32,709

$

36,247

$

24,579

$

25,483

$

22,442

Depreciation and amortization

50,421

48,101

49,102

46,580

46,995

(Gain) loss on sale of real estate

(219)

340

Gain on sale of land parcel

(4,052)

(772)

Amount attributable to noncontrolling interests/unvested restricted stock awards:

Net income

1,569

1,504

1,402

1,383

1,324

FFO

(1,629)

(1,582)

(1,494)

(1,437)

(1,064)

FFO attributable to Alexandria's common stockholders – basic

83,070

80,218

73,589

71,018

70,037

Assumed conversion of unsecured senior convertible notes

5

5

5

FFO attributable to Alexandria's common stockholders – diluted

83,070

80,218

73,594

71,023

70,042

Impairment of investments

853

Acquisition-related expenses

1,446

Loss on early extinguishment of debt

1,432

560

Allocation to unvested restricted stock awards

(12)

(11)

(12)

FFO attributable to Alexandria's common stockholders – diluted, as adjusted

83,070

82,505

75,015

71,571

70,042

Non-revenue-enhancing capital expenditures:

Building improvements

(1,780)

(1,047)

(1,481)

(337)

(596)

Tenant improvements and leasing commissions

(4,053)

(8,291)

(3,739)

(2,990)

(882)

Straight-line rent revenue

(11,882)

(7,928)

(5,570)

(8,239)

(6,198)

Straight-line rent expense on ground leases

711

445

374

539

538

Capitalized income from development projects

72

40

9

22

Amortization of acquired above and below market leases

(816)

(826)

(830)

(830)

(830)

Amortization of loan fees

2,561

2,636

2,487

2,427

2,386

Amortization of debt premiums/discounts

205

146

153

115

115

Stock compensation

3,228

4,011

3,729

4,463

3,349

Allocation to unvested restricted stock awards

94

94

28

50

19

AFFO attributable to Alexandria's common stockholders – diluted

$

71,338

$

71,817

$

70,206

$

66,778

$

67,965

 

 

Funds From Operations Per Share and Adjusted Funds From Operations Per Share

(Unaudited)

 The following table presents a reconciliation of net income per share attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with GAAP, to FFO per share attributable to Alexandria's common stockholders – diluted, FFO per share attributable to Alexandria's common stockholders – diluted, as adjusted, and AFFO per share attributable to Alexandria's common stockholders – diluted. For the computation of the weighted average shares used to compute the per share information, refer to the "Definitions and Other Information" section in our supplemental information.

 

Three Months Ended

3/31/14

12/31/13

9/30/13

6/30/13

3/31/13

Net income per share attributable to Alexandria's common stockholders – basic and diluted

$

0.46

$

0.51

$

0.35

$

0.38

$

0.36

Depreciation and amortization

0.71

0.68

0.69

0.69

0.74

Loss on sale of real estate

0.01

Gain on sale of land parcel

(0.06)

(0.01)

FFO per share attributable to Alexandria's common stockholders – basic and diluted

1.17

1.13

1.04

1.06

1.11

Impairment of investments

0.01

Acquisition-related expenses

0.02

Loss on early extinguishment of debt

0.02

0.01

FFO per share attributable to Alexandria's common stockholders – diluted, as adjusted

1.17

1.16

1.06

1.07

1.11

Non-revenue-enhancing capital expenditures:

Building improvements

(0.03)

(0.01)

(0.02)

(0.01)

(0.01)

Tenant improvements and leasing commissions

(0.06)

(0.12)

(0.05)

(0.04)

(0.01)

Straight-line rent revenue

(0.17)

(0.11)

(0.08)

(0.12)

(0.10)

Straight-line rent expense on ground leases

0.01

0.01

0.01

0.01

0.01

Amortization of acquired above and below market leases

(0.01)

(0.01)

(0.01)

(0.01)

(0.01)

Amortization of loan fees

0.04

0.03

0.03

0.03

0.04

Stock compensation

0.05

0.06

0.05

0.07

0.05

AFFO per share attributable to Alexandria's common stockholders – diluted

$

1.00

$

1.01

$

0.99

$

1.00

$

1.08

 

 

 

 

SOURCE Alexandria Real Estate Equities, Inc.