Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2012 Financial and Operating Results FFO Per Share - Diluted of $1.08 and $3.18 for Three and Nine Months Ended 3Q12

EPS − Diluted of $0.17 and $0.75 for Three and Nine Months Ended 3Q12

Significant Progress Converting Non-Income-Producing Assets into Income-Producing Operating Assets

PASADENA, Calif., Oct. 26, 2012 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the third quarter ended September 30, 2012.

Third Quarter Ended September 30, 2012, Highlights

Results

  • Funds From Operations ("FFO") Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Three Months Ended September 30, 2012, was $67.1 Million, or $1.08 Per Share;  FFO Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Nine Months Ended September 30, 2012, was $196.8 Million, or $3.18 Per Share
  • Adjusted Funds From Operations ("AFFO") Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Three Months Ended September 30, 2012, was $65.0 Million, or $1.04 Per Share;  AFFO Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Nine Months Ended September 30, 2012, was $191.4 Million, or $3.09 Per Share
  • Net Income Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Three Months Ended September 30, 2012, was $10.6 Million, or $0.17 Per Share; Net Income Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Three Months Ended September 30, 2012, Excluding $9.8 Million, or $0.16 Per Share, Related to Impairment of Real Estate, and Excluding $1.6 Million, or $0.03 Per Share, Related to Gain on Sale of Real Estate, was $18.8 Million, or $0.30 Per Share;  Net Income Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Nine Months Ended September 30, 2012, was $46.6 Million, or $0.75 Per Share; Net Income Attributable to Alexandria Real Estate Equities, Inc.'s Common Stockholders – Diluted, for the Nine Months Ended September 30, 2012, Excluding $9.8 Million, or $0.16 Per Share, Related to Impairment of Real Estate, Excluding $2.2 Million, or $0.03 Per Share, Related to Loss on Early Extinguishment of Debt, and Excluding $1.6 Million, or $0.03 Per Share, Related to Gain on Sale of Real Estate, was $57.0 Million, or $0.91 Per Share 

Core Operating Metrics

  • Total Revenues for the Three Months Ended September 30, 2012, were $145.5 Million, Compared to Total Revenues for the Three Months Ended September 30, 2011, of $138.1 Million; Total Revenues for the Nine Months Ended September 30, 2012, were $431.9 Million, Compared to Total Revenues for the Nine Months Ended September 30, 2011, of $409.0 Million
  • Net Operating Income ("NOI") for the Three Months Ended September 30, 2012, was $100.8 Million, Compared to NOI for the Three Months Ended September 30, 2011, of $97.2 Million; NOI for the Nine Months Ended September 30, 2012, was $304.0 Million, Compared to NOI for the Nine Months Ended September 30, 2011, of $291.0 Million
  • Operating Margins at 69% for the Three Months Ended September 30, 2012
  • Cash and GAAP Same Property Net Operating Income Increase of 4.3% and Decrease of 0.9%, Respectively, for the Three Months Ended September 30, 2012
  • Cash and GAAP Same Property Net Operating Income Increase of 2.6% and Decrease of 0.8%, Respectively, for the Nine Months Ended September 30, 2012
  • 48% of Annualized Base Rent from Investment-Grade Client Tenants
  • During the Three Months Ended September 30, 2012, Executed 47 Leases for 732,000 Rentable Square Feet, Including 266,000 Rentable Square Feet of Development and Redevelopment Space; Rental Rate Decrease of 2.9% and Increase of 7.6% on a Cash and GAAP Basis, Respectively, on Renewed/Re-Leased Space
  • During the Nine Months Ended September 30, 2012, Executed 146 Leases for 2,603,000 Rentable Square Feet, Including 829,000 Rentable Square Feet of Development and Redevelopment Space; Rental Rate Decrease of 1.9% and Increase of 5.9% on a Cash and GAAP Basis, Respectively, on Renewed/Re-Leased Space; Excluding One Lease for 48,000 Rentable Square Feet Related to One Client Tenant in the Research Triangle Park Market and One Lease for 71,000 Rentable Square Feet Related to One Client Tenant in the Suburban Washington, D.C. Market, Rental Rates for Renewed/Re-Leased Space were, on Average, 0.1% Higher and 7.3% Higher than Rental Rates for Expiring Leases on a Cash and GAAP Basis, Respectively
  • Occupancy Percentage for North America Operating Properties of 94.2% and Occupancy Percentage for North America Operating and Redevelopment Properties of 90.0%; Occupancy Percentage for All Operating Properties of 93.0%, Including Asia Properties, and Occupancy Percentage for All Operating and Redevelopment Properties of 88.3%, Including Asia Properties

Value-Added Opportunities and External Growth

  • From November 2011 to September 2012, Completed Redevelopment of 10300 Campus Point Drive, Located in the San Diego Market, a 96% Leased Project with 279,138 Rentable Square Feet, Including the Completion of 189,562 Rentable Square Feet in September 2012
  • In September 2012, Completed Development of 4755 Nexus Center Drive, Located in the San Diego Market, a 100% Leased Project with 45,255 Rentable Square Feet
  • In June 2012, Completed Redevelopment of 3530/3550 John Hopkins Court, Located in the San Diego Market, a 100% Leased Project with 98,320 Rentable Square Feet
  • In April 2012, Completed Development Located in the Canadian Market, a 100% Leased Project with 26,426 Rentable Square Feet
  • In April 2012, Commenced Unconsolidated Joint Venture Development of 360 Longwood Avenue, Located in the Greater Boston Market, a 37% Pre-Leased Project with 414,000 Rentable Square Feet
  • In January 2012, Commenced Development of 259 East Grand Avenue, Located in the San Francisco Bay Market, a 100% Pre-Leased Building with 170,618 Rentable Square Feet

ALEXANDRIA REAL ESTATE EQUITIES, INC.

Third Quarter Ended September 30, 2012, Financial and Operating Results

(Unaudited)

Significant Balance Sheet Milestones

  • Completed $75.1 Million of Asset Sales Year to Date with Additional $34.0 Million of Land Sales Forecasted in Fourth Quarter 2012 for a Total of $109.1 Million; Additional $84.5 Million Sales of Income-Producing Assets in Process
  • Established an "At The Market" Common Stock Offering Program Under Which We May Sell Up to $250.0 Million of Our Common Stock; and Raised $98.4 Million in Net Proceeds from Sales Under This Program for the Nine Months Ended September 30, 2012, including $58.5 Million in Net Proceeds from Sales Under This Program for the Three Months Ended September 30, 2012
  • In June 2012, Closed a Secured Construction Loan with Aggregate Commitments of $55 Million for a Development Project at 259 East Grand Avenue located in the San Francisco Bay Market
  • In April 2012, Amended Our $1.5 Billion Unsecured Senior Line of Credit to Reduce Its Interest Rate and Extend Its Maturity Date to April 2017, Assuming We Exercise Our Sole Right to Extend the Maturity Date Twice
  • In April 2012, Redeemed All $129.6 Million of Our Outstanding 8.375% Series C Preferred Stock
  • In March 2012, Completed a 6.45% Series E Preferred Stock Offering with Net Proceeds of $124.9 Million
  • In February 2012, Completed Our Debut 4.60% Unsecured Senior Notes Offering with Net Proceeds of $544.6 Million; Net Proceeds from the Offering Were Used to Repay Certain Outstanding Variable Rate Bank Debt
  • In February 2012, Repaid All $250 Million of Our 2012 Unsecured Senior Bank Term Loan
  • In January and April 2012, Retired All $84.8 Million of Our 3.70% Unsecured Senior Convertible Notes

Events Subsequent to Quarter End

  • In the Fourth Quarter of 2012, We Expect to Commence Vertical Construction of the Ground-Up Development of 430 East 29th Street, the West Tower of the Alexandria Center for Life Science – New York City, a Project with 419,806 Rentable Square Feet Located in the Greater NYC Market

VALUE-ADDED OPPORTUNITIES AND EXTERNAL GROWTH

Development and redevelopment

As of September 30, 2012, 96% of our overall leases contained annual rent escalations that were either fixed or based on a consumer price index or another index.  Our initial stabilized yield on a cash basis reflects cash rents upon stabilization and does not reflect contractual rent escalations beyond the stabilization date.  We expect, on average, our contractual cash rents related to our value-added projects to increase over time.  Initial stabilized yield is calculated as the quotient of net operating income and our investment in the property at stabilization ("Initial Stabilized Yield").

During the three and nine months ended September 30, 2012, we executed leases aggregating 266,000 and 829,000 rentable square feet, respectively, related to our development and redevelopment projects.

In the fourth quarter of 2012, we expect to commence a ground-up development of a multi-tenant laboratory building with 419,806 rentable square feet at 430 East 29th Street, the West Tower of the Alexandria Center for Life Science – New York City.  We expect to provide an estimate of our Initial Stabilized Yields next quarter upon commencement of ground-up development.

From November 2011 to September 2012, we completed the redevelopment of 279,138 rentable square feet, including the completion of 189,562 rentable square feet in September 2012, at 10300 Campus Point Drive, located in the San Diego market.  This property is a multi-tenant campus with 449,759 rentable square feet that is 96% leased to (1) Eli Lilly and Company, (2) The Regents of the University of California, (3) Celgene Corporation, and (4) Covance Inc.  The Initial Stabilized Yield on a cash and GAAP basis for the 279,138 rentable square feet redevelopment project was approximately 7.9% and 7.7%, respectively.

In September 2012, we completed the development of 4755 Nexus Center Drive, located in the San Diego market, a single-tenant building with 45,255 rentable square feet that is 100% leased to Optimer Pharmaceuticals, Inc.  The Initial Stabilized Yield on a cash and GAAP basis for this project was approximately 6.8% and 7.5%, respectively.

In June 2012, we completed the redevelopment of 3530/3550 John Hopkins Court, located in the San Diego market, a multi-tenant campus with 98,320 rentable square feet that is 100% leased to (1) Genomics Institute of the Novartis Research Foundation, a non-profit research institute, and (2) a leading industrial biotechnology company.  The Initial Stabilized Yield on a cash and GAAP basis for this project was approximately 8.9% and 9.1%, respectively.

In April 2012, we completed the development of a building located in the Canadian market with 26,426 rentable square feet that is 100% leased to GlaxoSmithKline plc.  The Initial Stabilized Yield on a cash and GAAP basis for this project was approximately 7.7% and 8.3%, respectively. 

In April 2012, we commenced ground-up development of 360 Longwood Avenue, located in the Longwood Medical Area of the Greater Boston market, our 414,000 rentable square feet unconsolidated joint venture development project that is 37% pre-leased to the Dana-Farber Cancer Institute, Inc.  Dana-Farber Cancer Institute, Inc. also has an option to lease an additional two floors of approximately 99,000 rentable square feet, or an additional 24% of the total rentable square feet of the project.  We expect to achieve an unlevered Initial Stabilized Yield on a cash and GAAP basis in a range from 8.1% to 8.5% and 8.7% to 9.1%, respectively.  Funding for this project is provided primarily by capital from our joint venture partner and a $213.2 million non-recourse secured construction loan.  Additionally, our share of the future funding is expected to be less than the $22.3 million distribution we received in March 2012, upon admittance of the new partner and refinancing of the project.

In January 2012, we commenced a ground-up development of a single-tenant building with 170,618 rentable square feet at 259 East Grand Avenue, located in the San Francisco Bay market, which is 100% pre-leased to Onyx Pharmaceuticals Inc.  We expect to achieve an Initial Stabilized Yield on both a cash and GAAP basis for this property in a range from 7.8% to 8.2%.  Funding for this project will be provided primarily by the $55 million secured construction loan we closed in June 2012.

Acquisitions

In April 2012, we acquired 3013/3033 Science Park Road located in the San Diego market, which consists of two life science laboratory buildings aggregating 176,500 rentable square feet, for approximately $13.7 million.  The property was 100% leased on a short-term basis, and thereafter, we expect to redevelop approximately 98,000 rentable square feet.  The remaining square footage will be classified as future developable square feet once the existing client tenant vacates.  We expect to provide an estimate of our Initial Stabilized Yields in the future upon commencement of development/redevelopment activity.

ALEXANDRIA REAL ESTATE EQUITIES, INC.

Third Quarter Ended September 30, 2012, Financial and Operating Results

(Tabular dollar amounts in thousands, except per square foot amounts)

(Unaudited)

SIGNIFICANT BALANCE SHEET MILESTONES

Real estate asset sales

In September 2012, four properties aggregating 504,130 rentable square feet met the classification requirements for held for sale.  The current buyers are expected to reposition these assets and/or incur significant investments to re-tenant the properties.  During the three months ended September 30, 2012, we recorded impairment charges aggregating approximately $9.8 million to reduce the aggregate carrying value of the properties to the estimated sales price less costs to sell.

 







Rentable/


Sales


Occupancy


Annualized










Date


Developable


Price


at Date


GAAP


Sales


Gain


Description


Location


of Sale


Square Feet


per SF


of Sale


NOI (1)


Price (2)


on Sale


Land parcels and assets with a previous operating

     component:


















1201/1209 Mercer Street (3)


Seattle


September 2012


76,029


$           73


0%


$           45


$      5,570


$           54


801 Dexter Avenue North (3)


Seattle


August 2012


120,000


$           72


0%


$          (96)


8,600


$           55


Land parcel


Greater Boston


March 2012


(4)


$         275


N/A


          N/A


31,360


$      1,864


Sale of land parcels and assets with a previous

     operating component














45,530






















Income-producing properties:


















200 Lawrence Drive/210 Welsh Pool Road


Pennsylvania


July 2012


210,866


$           94


100%


$       2,193


19,750

(5)

$         103


155 Fortune Boulevard (6)


Route 495/Worcester


July 2012


36,000


$         222


100%


$         804


8,000


$      1,350


5110 Campus Drive (6)


Pennsylvania


May 2012


21,000


$           86


71%


$           77


1,800


$            2


Sales of income-producing properties












29,550

(7)





















Completed sales subtotal














75,080






















Sales in process


Various


Pending


261,000


$         130


N/A


$        (470)


34,000

(8)

TBD


Subtotal














109,080






















Other incremental dispositions
















Sales in process (9)


Various


Pending


504,130


$         174


N/A


$     12,798


84,500


TBD




















Total projected dispositions














$   193,580




 

(1)       Annualized using actual year to date results as of the quarter end prior to date of sale or September 30, 2012.

(2)       Represents contractual sales price for assets sold or contractual/estimated sale price for sales in process.

(3)       Properties sold to residential developers.

(4)       In March 2012, we sold one-half of our 55% interest in a land parcel supporting a 414,000 rentable square feet project for approximately $31.4 million, or approximately $275 per rentable square foot.

(5)       Sales price reflects the near-term lease expiration of a client tenant occupying 38,513 rentable square feet, or 18% of the total rentable square feet, on the date of sale.  In connection with the sale, we received an interest-only secured note receivable for $6.1 million due in 2018.

(6)       Properties were sold to client tenants. 

(7)       The weighted average capitalization rate (Annualized GAAP NOI divided by Sales Price) related to sales of income-producing assets in the nine months ended September 30, 2012, was 10.4%.

(8)       Includes a $13.3 million amortizing secured note receivable due in 2014.

(9)       Includes four properties, which the buyers expect to renovate.  During the three months ended September 30, 2012, we recognized an aggregate charge for impairment of real estate of approximately $9.8 million to adjust the carrying values of the four properties to their fair value, less costs to sell.  We may receive a note receivable in connection with sale of one property.  One sale ranging from $42 million to $47 million may close during the three months ended December 31, 2012. 

Sale of land parcel

In March 2012, we contributed our 55% ownership interest in a land parcel supporting a future building with 414,000 rentable square feet in the Longwood Medical Area of the Greater Boston market to a newly formed joint venture (the "Restated JV") with National Development and Charles River Realty Investors, and admitted as a 50% member, Clarion Partners, LLC, resulting in a reduction of our ownership interest from 55% to 27.5%.  The transfer of one-half of our 55% ownership interest in this real estate venture to Clarion Partners, LLC, was accounted for as an in-substance partial sale of an interest in the underlying real estate.  In connection with the sale of one-half of our 55% ownership interest in the land parcel, we received a special distribution of approximately $22.3 million, which included the recognition of a $1.9 million gain on sale of land and approximately $5.4 million from our share of loan refinancing proceeds.  The land parcel we sold in March 2012 did not meet the criteria for discontinued operations since the parcel did not have any significant operations prior to disposition. Pursuant to the presentation and disclosure literature on gains/losses on sales or disposals by REITs required by the Securities and Exchange Commission ("SEC"), gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below (loss) income from discontinued operations in the income statement.  Accordingly, we classified the $1.9 million gain on sale of land below (loss) income from discontinued operations, net, in the condensed consolidated statements of income.  Our 27.5% share of the land was sold at approximately $31 million (including closing costs), or approximately $275 per rentable square foot.  Upon formation of the Restated JV, the existing $38.4 million secured loan was refinanced with a seven-year (including two one-year extension options) non-recourse $213 million secured construction loan with initial loan proceeds of $50 million.  As of September 30, 2012, the outstanding balance on the construction loan was $56.4 million.  We do not expect our share of capital contributions through the completion of the project to exceed the approximate $22.3 million in net proceeds received in this transaction.  Construction of this $350 million project commenced in April 2012.  The initial occupancy date for this project is expected to be in the fourth quarter of 2014.  The project is 37% pre-leased to Dana-Farber Cancer Institute, Inc.  In addition, Dana-Farber Cancer Institute, Inc. has an option to lease an additional two floors approximating 99,000 rentable square feet, or 24% of the total rentable square feet of the project.  In addition to our economic share of the joint venture, we also expect to earn development and other fees of approximately $3.5 million through 2015, and recurring annual property management fees thereafter, from this project.

ALEXANDRIA REAL ESTATE EQUITIES, INC.

Third Quarter Ended September 30, 2012, Financial and Operating Results

(Unaudited)

"At the market" common stock offering program

In June 2012, we established an "at the market" common stock offering program under which we may sell, from time to time, up to an aggregate of $250.0 million of our common stock through our sales agents, BNY Mellon Capital Markets, LLC and Credit Suisse Securities (USA) LLC, during a three-year period.  During the nine months ended September 30, 2012, we sold an aggregate of 1,366,977 shares of common stock for gross proceeds of approximately $100.0 million at an average stock price of $73.15 and net proceeds of approximately $98.4 million.  This includes the sale of an aggregate of 793,291 shares of common stock for gross proceeds of approximately $59.5 million at an average stock price of $74.97 and net proceeds of approximately $58.5 million during the three months ended September 30, 2012.  As of September 30, 2012, approximately $150.0 million of our common stock remained available for issuance under the "at the market" common stock offering program.

Secured construction loan for development project in San Francisco Bay market

In June 2012, we closed a secured construction loan with aggregate commitments of $55 million.  The construction loan matures in July 2015, and we have an option to extend the stated maturity date of July 1, 2015, by one year, twice, to July 1, 2017.  The construction loan will be used to fund the majority of the cost to complete the development of a 100% pre-leased life science laboratory building with 170,618 rentable square feet at 259 East Grand Avenue in the San Francisco Bay market.  The construction loan bears interest at the London Interbank Offered Rate ("LIBOR") or the base rate specified in the construction loan agreement, defined as the higher of either the prime rate being offered by our lender or the federal funds rate in effect on the day of borrowing ("Base Rate"), plus in either case a specified margin of 1.50% for LIBOR borrowings or 0.25% for Base Rate borrowings.  As of September 30, 2012, commitments of $53.0 million were available.

Debut 4.60% unsecured senior notes payable offering

In February 2012, we completed the issuance of our 4.60% unsecured senior notes payable due in February 2022.  Net proceeds of approximately $544.6 million were used to repay certain outstanding variable rate bank debt, including the entire $250 million of our 2012 unsecured senior bank term loan ("2012 Unsecured Senior Bank Term Loan"), and approximately $294.6 million of outstanding borrowings under our unsecured senior line of credit.  In connection with the retirement of our 2012 Unsecured Senior Bank Term Loan, we recognized a loss on early extinguishment of debt of approximately $0.6 million related to the write-off of unamortized loan fees for the three months ended March 31, 2012.

Retirement of 3.70% unsecured senior convertible notes

During January 2012, we repurchased approximately $83.8 million in principal amount of our 3.70% unsecured senior convertible notes ("3.70% Unsecured Senior Convertible Notes") at par, pursuant to options exercised by holders thereof under the indenture governing the notes.  During April 2012, we repurchased the remaining outstanding $1.0 million in principal amount of the notes.  In aggregate, we repurchased approximately $84.8 million in principal amount of the notes and we did not recognize a gain or loss as a result during the six months ended June 30, 2012.

Amendment of $1.5 billion unsecured senior line of credit

In April 2012, we amended our $1.5 billion unsecured senior line of credit with Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., and Citigroup Global Markets Inc. as joint lead arrangers, and certain lenders, to extend the maturity date of our unsecured senior line of credit, provide an accordion option for up to an additional $500 million, and reduce the interest rate for outstanding borrowings.  The maturity date of the unsecured senior line of credit was extended to April 2017, assuming we exercise our sole right to extend the stated maturity date twice by an additional six months after each exercise.  Borrowings under the unsecured senior line of credit bear interest at LIBOR or the base rate specified in the amended unsecured senior line of credit agreement, plus in either case a specified margin (the "Applicable Margin").  The Applicable Margin for LIBOR borrowings under the unsecured senior line of credit was set at 1.20%, down from 2.40% in effect immediately prior to the modification.  In addition to the Applicable Margin, our unsecured senior line of credit is subject to an annual facility fee of 0.25%.  In connection with the modification of our unsecured senior line of credit in April 2012, we recognized a loss on early extinguishment of debt of approximately $1.6 million related to the write-off of a portion of unamortized loan fees for the three months ended June 30, 2012.

6.45% series E preferred stock offering

In March 2012, we completed a public offering of 5,200,000 shares of our 6.45% series E cumulative redeemable preferred stock ("Series E Preferred Stock").  The shares were issued at a price of $25.00 per share, resulting in net proceeds of approximately $124.9 million (after deducting underwriters' discounts and other offering costs).  The proceeds were initially used to reduce the outstanding borrowings under our unsecured senior line of credit.  We then borrowed funds under our unsecured senior line of credit to redeem our 8.375% series C cumulative redeemable preferred stock ("Series C Preferred Stock") in April 2012.  The dividends on our Series E Preferred Stock are cumulative and accrue from the date of original issuance.  We pay dividends quarterly in arrears at an annual rate of 6.45%, or $1.6125 per share.  Our Series E Preferred Stock has no stated maturity date, is not subject to any sinking fund or mandatory redemption provisions, and is not redeemable before March 15, 2017, except to preserve our status as a REIT.  On and after March 15, 2017, we may, at our option, redeem the Series E Preferred Stock, in whole or in part, at any time for cash at a redemption price of $25.00 per share, plus any accrued and unpaid dividends on the Series E Preferred Stock up to, but excluding, the redemption date.  In addition, upon the occurrence of a change of control, we may, at our option, redeem the Series E Preferred Stock, in whole or in part within 120 days after the first date on which such change of control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends up to, but excluding, the date of redemption.  Investors in our Series E Preferred Stock generally have no voting rights.

8.375% series C preferred stock redemption

In April 2012, we redeemed all 5,185,500 outstanding shares of our Series C Preferred Stock at a price equal to $25.00 per share, or approximately $129.6 million in aggregate, and paid $0.5234375 per share, representing accumulated and unpaid dividends to the redemption date on such shares.  We recognized a charge of approximately $6.0 million to net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders in March 2012, related to the write-off of original issuance costs of the Series C Preferred Stock.

ALEXANDRIA REAL ESTATE EQUITIES, INC.


Third Quarter Ended September 30, 2012, Financial and Operating Results

(Unaudited)

GUIDANCE

Earnings outlook

Based on our current view of existing market conditions and certain current assumptions, we expect that our earnings per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted and FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted for the year ended December 31, 2012, will be as set forth in the table below.  The table below provides a reconciliation of FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – diluted, as adjusted, a non-GAAP measure, to earnings per share, the most directly comparable GAAP measure.

 

Guidance for the Year Ended December 31, 2012


Reported on October 26, 2012


Reported on July 30, 2012


    Earnings per share attributable to Alexandria Real Estate Equities, Inc.'s common

        stockholders – diluted


$1.16 - $1.26


$1.36 - $1.46


    Depreciation and amortization


$3.00 - $3.06


$2.93 - $2.99


      Gain on sales of property


$ (0.06)


$ (0.03)


    Impairment of real estate


$0.16



    FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common

        stockholders – diluted


$4.32 - $4.36


$4.32 - $4.36


Write-off of unamortized loan fees upon early retirement of the 2012 Unsecured Senior

       Bank Term Loan


$0.01


$0.01


Write-off of unamortized loan fees upon modification of unsecured senior line of credit


$0.03


$0.03


Preferred stock redemption charge


$0.10


$0.10


    Realized gain on equity investment primarily related to one non-tenant life science    entity


$ (0.09)


$(0.09)


    FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common    stockholders – diluted, as adjusted


$4.37 - $4.41


$4.37 - $4.41








Key net operating income projection assumptions:






    Same property net operating income growth – cash basis


3% to 4%


3% to 5%


    Same property net operating income growth – GAAP basis


Slightly negative/positive


0% to 2%


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


Slightly negative/positive


Slightly negative/positive


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


Up to 5%


Up to 5%


    Straight-line rents


$6.5 million/qtr


$6.5 million/qtr


    Amortization of above and below market leases


$0.8 million/qtr


$0.8 million/qtr


    Realized gain on equity investment primarily related to one non-tenant life science

        entity


$5.8 million


$5.8 million


 

Net operating income, net income, and FFO for the three months ended December 31, 2012

As of September 30, 2012, we had approximately $304.6 million and $277.5 million of construction in progress related to our five North American development and eight North American redevelopment projects, respectively. The completion of these projects, along with recently delivered projects, certain future projects, and contributions from same properties, are expected to contribute significant increases in rental income, net operating income, and cash flows.  Net operating income from continuing operations is projected to increase from $100.8 million for the three months ended September 30, 2012, to a range from $107.5 million to $109.5 million for the three months ended December 31, 2012 (after considering approximately $3.0 million in required reclassifications for discontinued operations).  Operating performance assumptions related to the completion of our North America development and redevelopment projects, including the timing of initial occupancy, stabilization dates, and Initial Stabilized Yields, are included on page 7.  Certain key assumptions regarding our projections, including the impact of various development and redevelopment projects, are included in the tables above, below, and on the following page. 

The completion of our development and redevelopment projects will result in increased interest expense and other direct project costs, because these project costs will no longer qualify for capitalization and these costs will be expensed as incurred.  Our projections for general and administrative expenses, capitalization of interest, and interest expense, net, are included in the tables on this page.  Our projections of net operating income are subject to a number of variables and uncertainties, including those discussed under the "Forward-looking Statements" section of Part I, the "Risk Factors" section of Item 1A, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section under Item 7, of our annual report on Form 10-K for the year ended December 31, 2011.  To the extent our full year earnings guidance is updated during the year, we will provide additional disclosure supporting reasons for any significant changes to such guidance.  Further, we believe net operating income is a key performance indicator and is useful to investors as a performance measure because, when compared across periods, net operating income reflects the impact on operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not immediately apparent from income from continuing operations.

 

Three Months Ended December 31, 2012 (in millions, except per share amounts)


Reported on October 26, 2012


Reported on July 30, 2012


Net operating income:






        Continuing operations                                                                                                                                             


$107.5 - $109.5


$110.5 - $112.5


        Incremental dispositions classified in discontinued operations                                                                                         


$3.0



Total net operating income


$110.5 - $112.5


$110.5 - $112.5


General and administrative


$11.0 - $12.0


$11.0 - $12.0


Capitalization of interest


$13.6 - $14.6


N/A


Interest


$18.0 - $20.0


$19.5 - $22.5


Depreciation and amortization


$42.6 - $47.7


$42.6 - $47.7


Preferred stock dividends


$6.5


$6.5


Other


$1.0 - $1.4


$1.0 - $1.4


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


$26.9 - $30.9


$26.9 - $30.9


FFO


$72.0 - $73.0


$71.1 - $73.0


FFO per share – diluted


$1.15 - $1.17


$1.15 - $1.17


 

ALEXANDRIA REAL ESTATE EQUITIES, INC.

Third Quarter Ended September 30, 2012, Financial and Operating Results

(Unaudited)

Sources and uses of capital

We expect that our principal liquidity needs for the year ended December 31, 2012, will be satisfied by the following multiple sources of capital as shown in the table below.  There can be no assurance that our sources and uses of capital will not be materially higher or lower than these expectations.  Our liquidity available under our unsecured senior line of credit and from cash equivalents was approximately $1.2 billion as of September 30, 2012.

 



Reported on

October 26, 2012


Reported on

July 30, 2012



Sources and Uses of Capital for the Year Ended December 31, 2012 (in millions)


Completed


Projected


Total


Total



Sources of capital:











        Net cash provided by operating activities less dividends


$                     53


$                     28


$                  81

(1)

$                    81



        Asset and land sales


75


                76 - 81

(2)

          151 - 156


112



        Unsecured senior notes payable


550



550


550



        Borrowings on secured construction financing


2


22


24


24



        Series E Preferred Stock issuance


125



125


125



        Issuances under "at the market" common stock offering program


98


(3)

98


40



        Debt, equity, and joint venture capital


51

(4)

                57 - 84

(4)

          108 - 135


236



Total sources of capital


$                   954


$           183 - 215


$   1,137 - 1,169


$                1,168














Uses of capital:











        Development, redevelopment, and construction


$                   429


$                   167


$                596

(5)

$                   646



        Notes receivable from asset and land sales


6


                13 - 45


             19 - 51




        Acquisitions


46



46


46



        Secured debt repayments


8


3


11

(6)

11



        2012 Unsecured Senior Bank Term Loan repayment


250



250


250



        3.70% Unsecured Senior Convertible Notes repurchase


85



85


85



        Series C Preferred Stock redemption


130



130


130



Total uses of capital


$                   954


$           183 - 215


$   1,137 - 1,169


$                1,168














(1)       See table of "Key Net Operating Income Projection Assumptions" and projections table in the "Net Operating Income, Net Income, and FFO for the Three Months Ended December 31, 2012" section on the preceding page.

(2)       Represents an estimate of sources of capital from pending asset and land sales.  As noted in "Real Estate Asset Sales" on page 3, we have other incremental dispositions in process aggregating $84.5 million, a portion of which may close during the three months ended December 31, 2012.

(3)       See "Debt, equity, and joint venture capital."

(4)       Represents an estimate of sources of capital primarily consisting of borrowings under our unsecured senior line of credit and proceeds from our "at the market" common stock offering program.

(5)       See "Investment to Complete" columns in the "Development and Redevelopment Projects in North America" table on the following page for additional details underlying this estimate.  The decrease of approximately $50 million from the approximately $646 million previously reported on July 30, 2012, is primarily attributable to the timing of the spending moving from the three months ended December 31, 2012, to the year ended December 31, 2013.

(6)       Based upon contractually scheduled payments or maturity dates.

 

The key assumptions behind the sources and uses of capital in the table above are a favorable capital market environment and performance of our core operations in areas such as delivery of current and future development and redevelopment projects, leasing activity, and renewals.  Our expected sources and uses of capital are subject to a number of variables and uncertainties, including those discussed under the "Forward-looking statements" section of Part I, the "Risk Factors" section of Item 1A, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section under Item 7, of our annual report on Form 10-K for the year ended December 31, 2011.  We expect to update our forecast of sources and uses of capital on a quarterly basis.