2014

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

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.




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