Alexandria Real Estate Equities, Inc. Reports Fourth Quarter and Year Ended December 31, 2014 Financial and Operating Results
Total Return of 44.7% in 2014
FFO Per Share - Diluted, as Adjusted, of $4.80 for 2014, up 9.1% over 2013
EPS - Diluted of $1.01 for 2014
Total Revenues of $726.9 million for 2014
NOI of $508.6 million for 2014
PASADENA, Calif., Feb. 2, 2015 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the fourth quarter and year ended December 31, 2014.
"As we report our results for the fourth quarter and year ended December 31, 2014, we are very pleased with the execution of our strategic business plan resulting in our 2014 total return performance of 44.7%. In 2014, we celebrated the 20th anniversary of the founding of Alexandria. We began the year with confidence in our business, driven by continued strong performance in the core asset base, positive factors resulting in accelerating demand for our Class A science and technology properties in our urban innovation cluster campuses, a valuable near-term development pipeline primed to deliver continued growth, and a disciplined approach to allocation of capital. At the end of 2014, occupancy of our operating properties was 97%. Our growth for both cash rental rates from lease renewals/re-leasing of space and cash same property NOI were greater than 5% for 2014. Additionally, our current value-creation pipeline aggregating 2.3 million rentable square feet was 90% leased or under negotiation as of December 31, 2014.
Transitioning into 2015, we continue to remain focused on allocating our precious capital into markets with strong fundamentals, accelerating demand, and limited supply. With overlapping demand from both the science and technology sectors in markets such as Mission Bay/SoMA and Cambridge, as well as strong rental rate growth across many of our key urban markets, we remain confident in our ability to deliver consistent and solid growth in FFO per share and NAV in 2015," said Joel S. Marcus, Chairman, Chief Executive Officer, and Founder of Alexandria Real Estate Equities, Inc.
Results
- Funds from operations ("FFO") attributable to Alexandria Real Estate Equities, Inc.'s ("Alexandria's") common stockholders – diluted, as adjusted:
- $1.23 per share for 4Q14, up 6.0%, compared to $1.16 per share for 4Q13
- $4.80 per share for 2014, up 9.1%, compared to $4.40 per share for 2013
- $87.9 million for 4Q14, up $5.4 million, or 6.5%, compared to $82.5 million for 4Q13
- $341.6 million for 2014, up $42.4 million, or 14.2%, compared to $299.1 million for 2013
- Net (loss) income attributable to Alexandria's common stockholders – diluted:
- $(16.2) million, or $(0.23) per share, for 4Q14 compared to $36.2 million, or $0.51 per share, for 4Q13
- $72.1 million, or $1.01 per share, for 2014 compared to $108.8 million, or $1.60 per share, for 2013
- Results for 4Q14 and 2014 include an aggregate $46.2 million net loss and $45.9 million net loss, respectively, or $0.65 per share for each period, related to impairments of real estate assets held for sale, loss on early extinguishment of debt, and a preferred stock redemption charge, offset slightly by gains on sales of real estate
Core operating metrics
- Total revenues:
- $188.7 million for 4Q14, up $19.9 million, or 11.8%, compared to $168.8 million for 4Q13
- $726.9 million for 2014, up $95.7 million, or 15.2%, compared to $631.2 million for 2013
- Net operating income ("NOI"), including our share of unconsolidated joint ventures:
- $132.7 million for 4Q14, up $13.8 million, or 11.6%, compared to $118.9 million for 4Q13
- $508.6 million for 2014, up $66.5 million, or 15.0%, compared to $442.1 million for 2013
- Same property NOI growth:
- Up 3.6% and 6.7% (cash basis) for 4Q14, compared to 4Q13
- Up 4.5% and 5.5% (cash basis) for 2014, compared to 2013
- Leasing activity during 4Q14:
- Executed leases for 581,660 rentable square feet ("RSF")
- 10.1% and 2.4% (cash basis) rental rate growth on lease renewals and re-leasing of space
- Leasing activity during 2014:
- Executed leases for 2,768,833 RSF
- 13.3% and 5.4% (cash basis) rental rate growth on lease renewals and re-leasing of space
- Occupancy for properties in North America, as of 4Q14:
- 97.0% occupancy for operating properties, up 110 basis points ("bps") from 4Q13
- 96.1% occupancy for operating and redevelopment properties, up 60 bps from 4Q13
- Operating margins solid at 70% for 4Q14 and 2014
- Adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") margins solid at 65% for 4Q14 and 2014
- 56% of total annualized base rent ("ABR") from investment-grade client tenants
Recent transactions impacting net (loss) income attributable to
Alexandria's common stockholders (in thousands, except per share amounts)
4Q14 |
4Q13 |
2014 |
2013 |
|||||||||||||
Impairment of investments |
$ |
— |
$ |
(853) |
$ |
— |
$ |
(853) |
||||||||
Acquisition-related expenses |
— |
(1,446) |
— |
(1,446) |
||||||||||||
Impairment of real estate |
(51,675) |
— |
(51,675) |
— |
||||||||||||
Loss on early extinguishment of debt |
— |
— |
(525) |
(1,992) |
||||||||||||
Gain (loss) on sales of real estate – rental properties |
1,838 |
— |
1,838 |
(121) |
||||||||||||
Gain on sales of real estate – land parcels |
5,598 |
4,052 |
6,403 |
4,824 |
||||||||||||
Preferred stock redemption charge |
(1,989) |
— |
(1,989) |
— |
||||||||||||
Total |
$ |
(46,228) |
$ |
1,753 |
$ |
(45,948) |
$ |
412 |
||||||||
Per diluted share |
$ |
(0.65) |
$ |
0.02 |
$ |
(0.65) |
$ |
0.01 |
||||||||
External growth: value-creation projects and acquisitions
Value-creation projects
- Development and redevelopment value-creation projects were on average 90% leased or under negotiation
- 4Q14 key deliveries of value-creation projects:
- 61,941 RSF to Illumina, Inc., Medivation, Inc., and Clovis Oncology, Inc. at 499 Illinois Street in our Mission Bay submarket
- 42,047 RSF to Receptos, Inc. at 3033 Science Park Road in our Torrey Pines submarket
- 4Q14 key commencements of value-creation development projects:
- Expanded our value-creation development project at 5200 Illumina Way – Building 6 from 149,663 RSF (leased) to 295,837 RSF to reflect negotiations for the expansion of Building 6 by 146,174 RSF.
- Commenced a 61,547 RSF value-creation development project at 6040 George Watts Hill Drive, located in our Research Triangle Park submarket; and 100% pre-leased to Fuji Diosynth Biotechnologies U.S.A., Inc.
- During 4Q14, our value-creation pipeline increased by 416,230 developable SF related to our development opportunities at the following high-quality urban innovative cluster campus locations: 5200 Illumina Way, 10300 Campus Point, and Executive Drive in University Town Center, and Alexandria Center™ at Kendall Square – 50 Rogers Street (residential) in Cambridge.
- Non-income-producing assets (CIP and land) are expected to decrease from 16% of gross real estate at the end of 4Q14 to 13% by the end of 1Q15.
Acquisitions
- In November 2014, we acquired a property aggregating 133,731 RSF at 9625 Towne Centre Drive in our University Town Center submarket for $22.3 million. The property is 100% leased until August 31, 2015, after which we plan to commence conversion of this building into tech office through redevelopment.
- In January 2015, we acquired 640 Memorial Drive in the Cambridge submarket for $176.5 million. This property is a 225,504 RSF Class A, LEED Gold Certified, office/laboratory building in Mid-Cambridge and near the MIT campus, 100% leased to two high-quality life science tenants pursuant to long-term leases. In connection with the acquisition, we assumed a secured note payable of $82.0 million with an interest rate of 3.93% and a maturity date in 2023. The property is subject to a long-term ground lease. We estimate initial unlevered stabilized yields of 7.5% and 6.4% (cash), respectively, and unlevered average cash yield of 6.8%.
- In January 2015, we executed an agreement to purchase the outstanding 10% noncontrolling interest in our flagship campus at Alexandria Technology Square® for $108.3 million. The purchase price will be paid in equal installments of $54 million each on April 1, 2015, and April 1, 2016. Alexandria has owned 90% of this 1.2 million RSF urban innovation campus since its purchase from MIT in 2006, and has since doubled its NOI from $30 million in 2006 to $64 million in 2014 with a current unlevered stabilized yield on our existing 90% interest of 8.1% and 7.3% (cash). We estimate initial unlevered stabilized yields of 6.1% and 5.4% (cash) on the purchase of the remaining 10% noncontrolling interest. We believe there is further upside in our projected returns as we are poised to capture significant rent growth from 81% of the leases contractually ending in the next five years. Additionally, we believe we can increase our 1.2 million RSF campus by an additional 100,000 RSF and further increase NOI. The campus is currently 99.5% occupied and subject to a long-term ground lease. After considering the $108.3 million purchase of the outstanding 10% noncontrolling interest in this flagship campus and the anticipated near and medium-term upside in NOI from rental rate growth and campus expansion, we estimate that we can enhance our unlevered yields on our aggregate investment in the campus over the next five years to 8.5% and 8.1% (cash).
Balance sheet
- $10.4 billion total market capitalization as of December 31, 2014
- 5.6 years weighted average remaining maturity of outstanding debt as of December 31, 2014
- 7.2x net debt to adjusted EBITDA – 4Q14 annualized, 2015 target range is 6.5x to 7.5x
- 3.3x fixed charge cover ratio – 4Q14 annualized, 2015 target range is 3.0x to 3.5x
- In December 2014, we purchased 513,500 outstanding shares of our 7.0% Series D cumulative convertible preferred stock ("7.0% Series D Convertible Preferred Stock") at an aggregate price of $14.4 million, or $27.975 per share
LEED statistics and other awards
- As of December 31, 2014, 30 LEED certified projects aggregating 4.6 million RSF were complete and 25 additional LEED projects aggregating 4.4 million square feet were in process
- In November 2014, both our East and West towers at the Alexandria Center® for Life Science in New York City, at 430 and 450 East 29th Street in our Manhattan submarket, earned Platinum-level Wired Certification
Dispositions
Our capital plan to fund our value-creation projects continues to include (i) cash provided by operating activities after dividends, (ii) unsecured debt funding supported by growth in EBITDA, and (iii) sales of land, high-value "core-like" operating assets, and non-core operating assets. In 4Q14 and January 2015, we completed $113.4 million in asset sales and had an additional $122.0 million of assets held for sale. The net proceeds from these sales will be invested into our highly-leased value-creation development projects. See the next page for key NAV considerations for dispositions and assets held for sale.
(Dollars in thousands) |
Dispositions |
|||||||||||||||||
Address / Market / Submarket |
Classification at 9/30/14 |
Square Feet |
Annual |
Sales |
Gain on Sale |
4Q14 Impairments |
||||||||||||
Dispositions in 4Q14 |
||||||||||||||||||
Various / San Francisco Bay Area / South San Francisco |
Land |
370,307 |
$ |
802 |
$ |
31,000 |
(3) |
$ |
— |
$ |
24,700 |
(3) |
||||||
124 Terry Avenue North / Seattle / Lake Union |
Land |
200,000 |
(51) |
11,500 |
3,834 |
— |
||||||||||||
Non-Cluster |
Land |
50,000 |
— |
7,480 |
1,764 |
— |
||||||||||||
751 |
49,980 |
5,598 |
24,700 |
|||||||||||||||
Various / San Diego / Sorrento Valley & Sorrento Mesa |
Rental Properties |
62,346 |
(471) |
7,447 |
(4) |
1,838 |
— |
|||||||||||
Dispositions in 4Q14 |
280 |
57,427 |
7,436 |
24,700 |
||||||||||||||
Held for sale at 12/31/14 – dispositions in January 2015 |
||||||||||||||||||
661 University Avenue / Canada / Toronto |
Rental Properties |
N/A |
(1,363) |
54,104 |
(5) |
— |
16,621 |
(5) |
||||||||||
Pennsylvania |
Rental Properties |
21,859 |
3 |
1,900 |
— |
794 |
||||||||||||
Dispositions in January 2015 |
(1,360) |
56,004 |
— |
17,415 |
||||||||||||||
Dispositions in 4Q14 and January 2015 |
(1,080) |
113,431 |
$ |
7,436 |
42,115 |
|||||||||||||
Held for sale at 12/31/14 – pending sales |
||||||||||||||||||
500 Forbes Boulevard / San Francisco Bay Area / South San Francisco |
Rental Properties |
155,685 |
5,539 |
107,848 |
(6) |
TBD |
9,560 |
(6) |
||||||||||
Other |
Rental Properties |
100,441 |
1,124 |
14,175 |
TBD |
— |
||||||||||||
Pending sales |
6,663 |
122,023 |
9,560 |
|||||||||||||||
Total dispositions completed and remainder of assets held for sale |
$ |
5,583 |
$ |
235,454 |
$ |
51,675 |
(1) |
Annualized using actual results for the quarter ended prior to date of sale or 4Q14 for assets held for sale at December 31, 2014. |
(2) |
Represents sale price for assets sold or net book value for pending sales as of December 31, 2014, net of impairment charges recognized in 4Q14. |
(3) |
During 4Q14, we sold nine non-contiguous land parcels with seven industrial buildings with occupancy of 98% located in the industrial park areas of South San Francisco near Associated Road, Rozzi Place and Eccles Avenue to a single buyer focused on operating, redeveloping and developing industrial properties. The sale price was approximately $31 million and reduced our developable square footage in aggregate by 370,307 SF. Additionally, in 4Q14 and prior to the sale, we recognized impairment charges on these land parcels aggregating $24.7 million to reduce their net book value to fair value less cost to sell. We acquired these parcels in 2006 and 2007 with the intention to create an amenity rich campus in South San Francisco. Our goal was to capture significant expansion and growth of major biotech companies prior to the financial crisis in 2008. A significant amount of the expansion plans by major biotech companies were approved by the city of South San Francisco. As we executed very successfully on our Class A campus totaling 407,369 RSF on long-term leases to the investment grade rated tenant, Amgen, Inc. and allocated capital to other high demand urban innovation campuses in Mission Bay and Cambridge, we will invest the sale proceeds immediately into highly-leased value-creation ground-up development projects. |
(4) |
These properties were classified as held for sale/discontinued operations prior to October 2014, therefore the NOI and gain on sale are classified in "income from discontinued operations" in our consolidated statements of income. |
(5) |
Represents land and land improvements subject to a ground lease with the Company as a lessee. Our annualized net operating loss of $1.4 million primarily represents ground rent expense. Prior to the sale, our land and land improvements were leased to a tenant and the tenant was completing the construction of a 780,540 RSF building. Rental payments from the tenant were anticipated to commence in the future upon completion and stabilization of the building. |
(6) |
During 4Q14, we committed to the sale of an operating property with a 155,865 RSF building located in South San Francisco, classified it as "held for sale," and accordingly, recognized an impairment charge of $9.6 million to reduce its net book value to our estimate of fair value less cost to sell of $107.8 million. The impairment is primarily related to the write-off of non-cash items related to improvements received from a prior tenant and an acquired below market lease. These non-cash items had a net book value of $17.7 million immediately prior to recognition of the impairment charge. The property was originally acquired in 2007 and is currently leased to an investment grade rated client tenant through 2019. We expect to complete the sale in 2015 at a low-cap rate and immediately invest the proceeds into highly-leased value-creation ground-up development projects. |
Key NAV Considerations for Dispositions and Assets Held for Sale: Net Positive / Increase to NAV
Address / Market / Submarket |
Comment |
Date of Sale |
Amount |
NAV |
||||
661 University Avenue / |
Sale of land and land improvements that were classified in rental properties as of September 30, 2014. Our initial investment in this project occurred in 2007 pursuant to a ground leasehold interest. Approximately 75% of the impairment of $16.6 million recognized in 4Q14 was related to changes in the foreign exchange rate, taxes and closing costs. The annual net operating loss for the property for 2014 was $1.4 million related to ground rent expense. Prior to the sale, the improvements were leased to a tenant and the tenant was in the process of completing the construction of a 780,540 RSF building. Rental payments from the tenant were anticipated to commence in the future upon completion and stabilization of the building. We believe most net asset value models did not attribute any value to the land and land improvements due to the annual net operating loss of $1.4 million. Accordingly, we believe the sales proceeds of $54.1 million will increase most NAV models. |
January |
$54.1 million |
Positive |
||||
Eliminate |
Positive |
|||||||
$16.6 million |
Neutral |
|||||||
Various / |
Impact will depend on valuation assumption prior to sale. Assuming land was valued at cost, the |
December |
$31.0 million |
Neutral |
||||
$24.7 million |
Negative |
|||||||
500 Forbes Boulevard / |
Impairment consisted primarily of the write-off of non-cash items related to improvements received from a prior tenant and one acquired below market lease. These non-cash items had a net book value of $17.7 million immediately prior to recognition of the impairment charge. We believe that the value most NAV models had for this property was based upon its NOI divided by a market capitalization rate. As a result, we believe this non-cash impairment will not impact most NAV models. |
TBD |
$9.6 million impairment |
Neutral |
||||
Net Positive / |
Guidance
The following updated guidance is based on our current view of existing market conditions and other assumptions for the year ended December 31, 2015. There can be no assurance that actual amounts will be materially higher or lower than these expectations. See our discussion of "forward-looking statements" on the following page.
EPS and FFO Per Share Attributable to Alexandria's |
2015 Guidance |
||
Earnings per share |
$1.60 to $1.80 |
||
Add back: depreciation and amortization |
3.52 |
||
Other |
(0.02) |
||
FFO per share |
$5.10 to $5.30 |
Key Assumptions (Dollars in thousands) |
Low |
High |
||||||
Occupancy percentage for operating properties in North |
96.9% |
97.4% |
||||||
Same property performance: |
||||||||
NOI increase |
0.5% |
2.5% |
||||||
NOI increase (cash basis) |
5.0% |
7.0% |
||||||
Lease renewals and re-leasing of space: |
||||||||
Rental rate increases |
14.0% |
17.0% |
||||||
Rental rate increases (cash basis) |
8.0% |
10.0% |
||||||
Straight-line rents |
$ |
42,000 |
$ |
47,000 |
||||
General and administrative expenses |
$ |
55,000 |
$ |
59,000 |
||||
Capitalization of interest |
$ |
35,000 |
$ |
45,000 |
||||
Interest expense |
$ |
110,000 |
$ |
120,000 |
Key Credit Metrics |
2015 Guidance |
||
Net debt to Adjusted EBITDA – 4Q15 annualized |
6.5x to 7.5x |
||
Fixed charge coverage ratio – 4Q15 annualized |
3.0x to 3.5x |
||
Non-income-producing assets as a percentage of gross real estate |
10% to 15% |
||
Sources and Uses of Capital (Dollars in thousands) |
Low |
High |
||||||
Sources of capital: |
||||||||
Net cash provided by operating activities after dividends |
$ |
115,000 |
$ |
135,000 |
||||
Incremental debt |
390,000 |
470,000 |
||||||
Remainder/asset sales (1) (2) |
340,000 |
440,000 |
||||||
Total sources of capital |
$ |
845,000 |
$ |
1,045,000 |
||||
Uses of capital: |
||||||||
Construction |
$ |
645,000 |
$ |
745,000 |
||||
Acquisitions (3) |
200,000 |
300,000 |
||||||
Total uses of capital |
$ |
845,000 |
$ |
1,045,000 |
||||
Incremental debt: |
||||||||
Issuance of unsecured senior and other notes payable (4) |
$ |
535,000 |
$ |
685,000 |
||||
Borrowings under: |
||||||||
Existing secured construction loans |
80,000 |
130,000 |
||||||
Repayments of: |
||||||||
Secured notes payable |
(61,000) |
(137,000) |
||||||
2016 unsecured senior term loan |
(150,000) |
(200,000) |
||||||
Unsecured senior line of credit |
(14,000) |
(8,000) |
||||||
Incremental debt |
$ |
390,000 |
$ |
470,000 |
(1) |
Represents the amount of remaining capital to be sourced in 2015. We expect to identify real estate sales, including land and non-core/"core-like" operating assets, over the next several quarters to generate proceeds for reinvestment into high-value Class A pre-leased development projects. The proceeds from these sales will vary depending on the impact of the sales on our ratio of net debt to Adjusted EBITDA. For example, the sale of an income-producing property benefits leverage less than the sale of a non-income-producing land parcel. Additionally, we will continue to execute our strategy to deliver solid growth in funds from operations per share, as adjusted, and net asset value in 2015, including any impact of asset sales. |
||||||
(2) |
Assets held for sale as of December 31, 2014, aggregated $178.0 million, including $56.0 million in sales completed in January 2015. |
||||||
(3) |
Includes the acquisition of 640 Memorial Drive completed in January 2015 for $176.5 million and $54.1 million, representing half of the aggregate consideration of $108.3 million to purchase the outstanding 10% noncontrolling interest in our flagship campus at Alexandria Technology Square®, which is due on April 1, 2015. The other one-half of the $108.3 million will be paid on April 1, 2016 and therefore has been excluded from uses of capital for 2015. |
||||||
(4) |
Includes a secured note payable of $82.0 million with an interest rate of 3.93% assumed in connection with the acquisition of 640 Memorial Drive in January 2015. |
Earnings Call Information
We will host a conference call on Tuesday, February 3, 2015, 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 fourth quarter and year ended December 31, 2014. To participate in this conference call, dial (800) 723-6498 or (785) 830-7989 and confirmation code 1191912 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, February 3, 2015. The replay number is (888) 203-1112 or (719) 457-0820 and the confirmation code is 1191912.
Additionally, a copy of this Earnings Press Release and Supplemental Information for the fourth quarter and year ended December 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/2014q4.pdf.
About the Company
Alexandria Real Estate Equities, Inc. (NYSE:ARE) is a fully integrated, self-administered, and self-managed real estate investment trust ("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, San Diego, Seattle, Maryland, and Research Triangle Park. Alexandria is the largest and leading owner, operator, and developer in its niche with a total market capitalization of $10.4 billion as of December 31, 2014, and an asset base of 31.5 million RSF, including 18.7 million RSF of operating and current value-creation projects, as well as an additional 12.8 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 2015 earnings per share attributable to Alexandria's common stockholders – diluted, 2015 FFO per share attributable to Alexandria's common stockholders – diluted, NOI, and our projected sources and uses of capital. You can identify the forward-looking statements by their use of forward-looking words, such as "forecast," "guidance," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," or "will," or the negative of those words or similar words. These forward-looking statements are based on our current expectations, beliefs, projections, future plans and strategies, anticipated events, or trends and similar expressions concerning matters that are not historical facts, as well as a number of assumptions concerning future events. There can be no assurance that actual results will not be materially higher or lower than these expectations. These statements are subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, without limitation, our failure to obtain capital (debt, construction financing, and/or equity) or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully 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, a favorable capital market environment, performance of our core operations in areas such as delivery of current and future development and redevelopment projects, leasing activity, lease renewals, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission ("SEC"). Accordingly, you are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are made as of the date of this earnings press release, and unless otherwise stated, we assume no obligation to update this information and expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||||
12/31/14 |
9/30/14 |
6/30/14 |
3/31/14 |
12/31/13 |
12/31/14 |
12/31/13 |
|||||||||||||||||||||||
Revenues: |
|||||||||||||||||||||||||||||
Rental |
$ |
140,873 |
$ |
137,718 |
$ |
134,992 |
$ |
130,570 |
$ |
125,693 |
$ |
544,153 |
$ |
467,764 |
|||||||||||||||
Tenant recoveries |
45,282 |
45,572 |
40,944 |
41,682 |
39,970 |
173,480 |
150,095 |
||||||||||||||||||||||
Other income |
2,519 |
2,325 |
466 |
3,934 |
3,160 |
9,244 |
13,292 |
||||||||||||||||||||||
Total revenues |
188,674 |
185,615 |
176,402 |
176,186 |
168,823 |
726,877 |
631,151 |
||||||||||||||||||||||
Expenses: |
|||||||||||||||||||||||||||||
Rental operations |
56,881 |
57,423 |
52,353 |
52,507 |
49,892 |
219,164 |
189,039 |
||||||||||||||||||||||
General and administrative |
13,861 |
12,609 |
13,836 |
13,224 |
12,751 |
53,530 |
48,520 |
||||||||||||||||||||||
Interest |
22,188 |
20,555 |
17,433 |
19,123 |
17,783 |
79,299 |
67,952 |
||||||||||||||||||||||
Depreciation and amortization |
57,973 |
58,388 |
57,314 |
50,421 |
48,084 |
224,096 |
189,123 |
||||||||||||||||||||||
Impairment of real estate |
51,675 |
(1) |
— |
— |
— |
— |
51,675 |
— |
|||||||||||||||||||||
Loss on early extinguishment of debt |
— |
525 |
— |
— |
— |
525 |
1,992 |
||||||||||||||||||||||
Total expenses |
202,578 |
149,500 |
140,936 |
135,275 |
128,510 |
628,289 |
496,626 |
||||||||||||||||||||||
Equity in earnings of unconsolidated joint ventures |
554 |
— |
— |
— |
— |
554 |
— |
||||||||||||||||||||||
(Loss) income from continuing operations |
(13,350) |
36,115 |
35,466 |
40,911 |
40,313 |
99,142 |
134,525 |
||||||||||||||||||||||
Income (loss) from discontinued operations |
1,722 |
(180) |
(147) |
(162) |
(143) |
1,233 |
900 |
||||||||||||||||||||||
Gain on sales of real estate – land parcels |
5,598 |
(1) |
8 |
797 |
— |
4,052 |
6,403 |
4,824 |
|||||||||||||||||||||
Net (loss) income |
(6,030) |
35,943 |
36,116 |
40,749 |
44,222 |
106,778 |
140,249 |
||||||||||||||||||||||
Dividends on preferred stock |
(6,284) |
(6,471) |
(6,472) |
(6,471) |
(6,471) |
(25,698) |
(25,885) |
||||||||||||||||||||||
Preferred stock redemption charge |
(1,989) |
(2) |
— |
— |
— |
— |
(1,989) |
— |
|||||||||||||||||||||
Net income attributable to noncontrolling interests |
(1,362) |
(1,340) |
(1,307) |
(1,195) |
(1,110) |
(5,204) |
(4,032) |
||||||||||||||||||||||
Net income attributable to unvested restricted stock awards |
(489) |
(506) |
(405) |
(374) |
(394) |
(1,774) |
(1,581) |
||||||||||||||||||||||
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.'s |
$ |
(16,154) |
(3) |
$ |
27,626 |
$ |
27,932 |
$ |
32,709 |
$ |
36,247 |
$ |
72,113 |
(4) |
$ |
108,751 |
|||||||||||||
Earnings per share attributable to Alexandria's common stockholders – |
|||||||||||||||||||||||||||||
Continuing operations |
$ |
(0.25) |
$ |
0.39 |
$ |
0.39 |
$ |
0.46 |
$ |
0.51 |
$ |
0.99 |
$ |
1.59 |
|||||||||||||||
Discontinued operations |
0.02 |
— |
— |
— |
— |
0.02 |
0.01 |
||||||||||||||||||||||
Earnings per share – basic and diluted |
$ |
(0.23) |
(3) |
$ |
0.39 |
$ |
0.39 |
$ |
0.46 |
$ |
0.51 |
$ |
1.01 |
(4) |
$ |
1.60 |
|||||||||||||
Weighted average shares of common stock outstanding for calculating |
71,314 |
71,195 |
71,126 |
71,073 |
71,000 |
71,170 |
68,038 |
||||||||||||||||||||||
Dividends declared per share of common stock |
$ |
0.74 |
$ |
0.72 |
$ |
0.72 |
$ |
0.70 |
$ |
0.68 |
$ |
2.88 |
$ |
2.61 |
(1) |
See further discussion of impairment of real estate and gains on sales of real estate in the "Dispositions" section. |
||||||
(2) |
In December 2014, we purchased 513,500 outstanding shares of our 7.0% Series D Convertible Preferred Stock at a price of $14.4 million in aggregate, or $27.975 per share. |
||||||
(3) |
Results for 4Q14 include an aggregate net loss of $46.2 million, or $0.65 per share, related to impairments of real estate and a preferred stock redemption charge, offset slightly by gains on sales of real estate. |
||||||
(4) |
Results for 2014 include an aggregate net loss of $45.9 million, or $0.65 per share, related to impairments of real estate, loss on early extinguishment of debt, and a preferred stock redemption charge, offset slightly by gains on sales of real estate. |
Consolidated Balance Sheets
(In thousands)
(Unaudited)
12/31/14 |
9/30/14 |
6/30/14 |
3/31/14 |
12/31/13 |
||||||||||||||||
Assets |
||||||||||||||||||||
Investments in real estate |
$ |
7,226,016 |
$ |
7,197,630 |
$ |
7,030,117 |
$ |
6,930,262 |
$ |
6,776,914 |
||||||||||
Cash and cash equivalents |
86,011 |
67,023 |
61,701 |
74,970 |
57,696 |
|||||||||||||||
Restricted cash |
26,884 |
24,245 |
24,519 |
30,454 |
27,709 |
|||||||||||||||
Tenant receivables |
10,548 |
10,830 |
10,654 |
10,619 |
9,918 |
|||||||||||||||
Deferred rent |
234,124 |
225,506 |
214,793 |
202,087 |
190,425 |
|||||||||||||||
Deferred leasing and financing costs |
201,798 |
199,835 |
193,621 |
192,618 |
192,658 |
|||||||||||||||
Investments |
236,389 |
(1) |
177,577 |
174,802 |
169,322 |
140,288 |
||||||||||||||
Other assets |
114,266 |
117,668 |
105,442 |
145,707 |
134,156 |
|||||||||||||||
Total assets |
$ |
8,136,036 |
$ |
8,020,314 |
$ |
7,815,649 |
$ |
7,756,039 |
$ |
7,529,764 |
||||||||||
Liabilities, Noncontrolling Interests, and Equity |
||||||||||||||||||||
Secured notes payable |
$ |
652,209 |
$ |
636,825 |
$ |
615,551 |
$ |
597,511 |
$ |
708,831 |
||||||||||
Unsecured senior notes payable |
1,747,370 |
1,747,290 |
1,048,310 |
1,048,270 |
1,048,230 |
|||||||||||||||
Unsecured senior line of credit |
304,000 |
142,000 |
571,000 |
506,000 |
204,000 |
|||||||||||||||
Unsecured senior bank term loans |
975,000 |
975,000 |
1,100,000 |
1,100,000 |
1,100,000 |
|||||||||||||||
Accounts payable, accrued expenses, and tenant security deposits |
489,085 |
504,535 |
434,528 |
443,893 |
435,342 |
|||||||||||||||
Dividends payable |
58,814 |
57,549 |
57,377 |
55,860 |
54,420 |
|||||||||||||||
Total liabilities |
4,226,478 |
4,063,199 |
3,826,766 |
3,751,534 |
3,550,823 |
|||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Redeemable noncontrolling interests |
14,315 |
14,348 |
14,381 |
14,413 |
14,444 |
|||||||||||||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity: |
||||||||||||||||||||
Series D cumulative convertible preferred stock |
237,163 |
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 |
715 |
714 |
713 |
712 |
712 |
|||||||||||||||
Additional paid-in capital |
3,461,189 |
3,523,195 |
3,542,334 |
3,560,453 |
3,572,281 |
|||||||||||||||
Accumulated other comprehensive loss |
(628) |
(28,711) |
(16,245) |
(18,429) |
(36,204) |
|||||||||||||||
Alexandria's stockholders' equity |
3,828,439 |
3,875,198 |
3,906,802 |
3,922,736 |
3,916,789 |
|||||||||||||||
Noncontrolling interests |
66,804 |
67,569 |
67,700 |
67,356 |
47,708 |
|||||||||||||||
Total equity |
3,895,243 |
3,942,767 |
3,974,502 |
3,990,092 |
3,964,497 |
|||||||||||||||
Total liabilities, noncontrolling interests, and equity |
$ |
8,136,036 |
$ |
8,020,314 |
$ |
7,815,649 |
$ |
7,756,039 |
$ |
7,529,764 |
(1) |
Includes unrealized gains on publicly traded investments aggregating $52.4 million as of December 31, 2014, classified in accumulated other comprehensive loss within our stockholders' equity. |
Funds From Operations and Adjusted Funds From Operations
(In thousands)
(Unaudited)
The following table presents a reconciliation of net (loss) income attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with generally accepted accounting principles ("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. The table below includes our share of consolidated and unconsolidated joint venture amounts.
Three Months Ended |
Year Ended |
|||||||||||||||||||||||||||
12/31/14 |
9/30/14 |
6/30/14 |
3/31/14 |
12/31/13 |
12/31/14 |
12/31/13 |
||||||||||||||||||||||
Net (loss) income attributable to Alexandria's common stockholders |
$ |
(16,154) |
$ |
27,626 |
$ |
27,932 |
$ |
32,709 |
$ |
36,247 |
$ |
72,113 |
$ |
108,751 |
||||||||||||||
Depreciation and amortization |
58,302 |
58,388 |
57,314 |
50,421 |
48,101 |
224,425 |
190,778 |
|||||||||||||||||||||
Impairment of real estate – rental properties |
26,975 |
— |
— |
— |
— |
26,975 |
— |
|||||||||||||||||||||
(Gain) loss on sales of real estate – rental properties (1) |
(1,838) |
— |
— |
— |
— |
(1,838) |
121 |
|||||||||||||||||||||
Gain on sales of real estate – land parcels |
(5,598) |
(8) |
(797) |
— |
(4,052) |
(6,403) |
(4,824) |
|||||||||||||||||||||
Amount attributable to noncontrolling interests/ |
||||||||||||||||||||||||||||
Net income |
1,851 |
1,846 |
1,712 |
1,569 |
1,504 |
6,978 |
5,613 |
|||||||||||||||||||||
FFO |
(2,063) |
(2,278) |
(1,648) |
(1,629) |
(1,582) |
(7,668) |
(5,577) |
|||||||||||||||||||||
FFO attributable to Alexandria's common stockholders – basic |
61,475 |
85,574 |
84,513 |
83,070 |
80,218 |
314,582 |
294,862 |
|||||||||||||||||||||
Assumed conversion of unsecured senior convertible notes |
— |
— |
— |
— |
— |
— |
15 |
|||||||||||||||||||||
FFO attributable to Alexandria's common stockholders – diluted |
61,475 |
85,574 |
84,513 |
83,070 |
80,218 |
314,582 |
294,877 |
|||||||||||||||||||||
Impairment of investments |
— |
— |
— |
— |
853 |
— |
853 |
|||||||||||||||||||||
Acquisition-related expenses |
— |
— |
— |
— |
1,446 |
— |
1,446 |
|||||||||||||||||||||
Impairment of real estate – land parcels |
24,700 |
— |
— |
— |
— |
24,700 |
— |
|||||||||||||||||||||
Loss on early extinguishment of debt |
— |
525 |
— |
— |
— |
525 |
1,992 |
|||||||||||||||||||||
Preferred stock redemption charge |
1,989 |
— |
— |
— |
— |
1,989 |
— |
|||||||||||||||||||||
Allocation to unvested restricted stock awards |
(259) |
(4) |
— |
— |
(12) |
(226) |
(35) |
|||||||||||||||||||||
FFO attributable to Alexandria's common stockholders – |
87,905 |
86,095 |
84,513 |
83,070 |
82,505 |
341,570 |
299,133 |
|||||||||||||||||||||
Non-revenue-enhancing capital expenditures: |
||||||||||||||||||||||||||||
Building improvements |
(1,989) |
(2,405) |
(1,255) |
(1,780) |
(1,047) |
(7,429) |
(3,461) |
|||||||||||||||||||||
Tenant improvements and leasing commissions |
(5,499) |
(1,693) |
(3,934) |
(4,053) |
(8,291) |
(15,179) |
(15,902) |
|||||||||||||||||||||
Straight-line rent revenue |
(10,023) |
(10,892) |
(12,737) |
(11,882) |
(7,928) |
(45,534) |
(27,935) |
|||||||||||||||||||||
Straight-line rent expense on ground leases |
657 |
723 |
697 |
711 |
445 |
2,788 |
1,896 |
|||||||||||||||||||||
Capitalized income from development projects |
— |
— |
— |
— |
72 |
— |
143 |
|||||||||||||||||||||
Amortization of acquired above and below market leases |
(654) |
(757) |
(618) |
(816) |
(826) |
(2,845) |
(3,316) |
|||||||||||||||||||||
Amortization of loan fees |
2,822 |
2,786 |
2,743 |
2,561 |
2,636 |
10,912 |
9,936 |
|||||||||||||||||||||
Amortization of debt premiums/discounts |
17 |
(36) |
(69) |
205 |
146 |
117 |
529 |
|||||||||||||||||||||
Stock compensation expense |
4,624 |
3,068 |
3,076 |
3,228 |
4,011 |
13,996 |
15,552 |
|||||||||||||||||||||
Allocation to unvested restricted stock awards |
98 |
71 |
90 |
94 |
94 |
359 |
191 |
|||||||||||||||||||||
AFFO attributable to Alexandria's common stockholders – diluted |
$ |
77,958 |
$ |
76,960 |
$ |
72,506 |
$ |
71,338 |
$ |
71,817 |
$ |
298,755 |
$ |
276,766 |
(1) |
Classified in income (loss) from discontinued operations in the consolidated statements of income. |
Funds From Operations Per Share and Adjusted Funds From Operations Per Share
(Unaudited)
The following table presents a reconciliation of (loss) earnings 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 Reconciliations" section in our supplemental information. The table below includes our share of consolidated and unconsolidated joint venture amounts.
Three Months Ended |
Year Ended |
|||||||||||||||||||||||||||
12/31/14 |
9/30/14 |
6/30/14 |
3/31/14 |
12/31/13 |
12/31/14 |
12/31/13 |
||||||||||||||||||||||
Earnings per share attributable to Alexandria's common |
$ |
(0.23) |
$ |
0.39 |
$ |
0.39 |
$ |
0.46 |
$ |
0.51 |
$ |
1.01 |
$ |
1.60 |
||||||||||||||
Depreciation and amortization |
0.82 |
0.81 |
0.81 |
0.71 |
0.68 |
3.16 |
2.80 |
|||||||||||||||||||||
Impairment of real estate – rental properties |
0.38 |
— |
— |
— |
— |
0.38 |
— |
|||||||||||||||||||||
(Gain) loss on sales of real estate – rental properties |
(0.03) |
— |
— |
— |
— |
(0.03) |
— |
|||||||||||||||||||||
Gain on sales of real estate – land parcels |
(0.08) |
— |
(0.01) |
— |
(0.06) |
(0.09) |
(0.07) |
|||||||||||||||||||||
Amount attributable to noncontrolling interests/ |
— |
— |
— |
— |
— |
(0.01) |
— |
|||||||||||||||||||||
FFO per share attributable to Alexandria's common stockholders – |
0.86 |
1.20 |
1.19 |
1.17 |
1.13 |
4.42 |
4.33 |
|||||||||||||||||||||
Impairment of investments |
— |
— |
— |
— |
0.01 |
— |
0.01 |
|||||||||||||||||||||
Acquisition-related expenses |
— |
— |
— |
— |
0.02 |
— |
0.02 |
|||||||||||||||||||||
Impairment of real estate – land parcels |
0.34 |
— |
— |
— |
— |
0.34 |
— |
|||||||||||||||||||||
Loss on early extinguishment of debt |
— |
0.01 |
— |
— |
— |
0.01 |
0.04 |
|||||||||||||||||||||
Preferred stock redemption charge |
0.03 |
— |
— |
— |
— |
0.03 |
— |
|||||||||||||||||||||
FFO per share attributable to Alexandria's common stockholders – |
1.23 |
1.21 |
1.19 |
1.17 |
1.16 |
4.80 |
4.40 |
|||||||||||||||||||||
Non-revenue-enhancing capital expenditures: |
||||||||||||||||||||||||||||
Building improvements |
(0.03) |
(0.03) |
(0.02) |
(0.03) |
(0.01) |
(0.10) |
(0.05) |
|||||||||||||||||||||
Tenant improvements and leasing commissions |
(0.08) |
(0.02) |
(0.06) |
(0.06) |
(0.12) |
(0.21) |
(0.23) |
|||||||||||||||||||||
Straight-line rent revenue |
(0.14) |
(0.15) |
(0.18) |
(0.17) |
(0.11) |
(0.64) |
(0.41) |
|||||||||||||||||||||
Straight-line rent expense on ground leases |
0.01 |
0.01 |
0.01 |
0.01 |
0.01 |
0.04 |
0.03 |
|||||||||||||||||||||
Amortization of acquired above and below market leases |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.04) |
(0.05) |
|||||||||||||||||||||
Amortization of loan fees |
0.05 |
0.03 |
0.04 |
0.04 |
0.03 |
0.14 |
0.14 |
|||||||||||||||||||||
Stock compensation expense |
0.06 |
0.04 |
0.05 |
0.05 |
0.06 |
0.20 |
0.23 |
|||||||||||||||||||||
Other |
— |
— |
— |
— |
— |
0.01 |
0.01 |
|||||||||||||||||||||
AFFO per share attributable to Alexandria's |
$ |
1.09 |
$ |
1.08 |
$ |
1.02 |
$ |
1.00 |
$ |
1.01 |
$ |
4.20 |
$ |
4.07 |
SOURCE Alexandria Real Estate Equities, Inc.
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